Capturing the zero: a new class of zero-augmented distributions and multiplicative error processes

We propose a novel approach to model serially dependent positive-valued variables which realize a non-trivial proportion of zero outcomes. This is a typical phenomenon in financial time series observed at high frequencie
We propose a novel approach to model serially dependent positive-valued variables which realize a non-trivial proportion of zero outcomes. This is a typical phenomenon in financial time series observed at high frequencies, such as cumulated trading volumes. We introduce a flexible point-mass mixture distribution and develop a semiparametric specification test explicitly tailored for such distributions. Moreover, we propose a new type of multiplicative error model (MEM) based on a zero-augmented distribution, which incorporates an autoregressive binary choice component and thus captures the (potentially different) dynamics of both zero occurrences and of strictly positive realizations. Applying the proposed model to high-frequency cumulated trading volumes of both liquid and illiquid NYSE stocks, we show that the model captures the dynamic and distributional properties of the data well and is able to correctly predict future distributions.
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Metadaten
Author:Nikolaus Hautsch, Peter Malec, Melanie Schienle
URN:urn:nbn:de:hebis:30:3-228731
Series (Serial Number):CFS working paper series (2011, 25)
Document Type:Working Paper
Language:English
Date of Publication (online):2011/10/06
Year of first Publication:2011
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2011/10/07
Tag:Excess Zeros; High-Frequency Data; Market Microstructure; Multiplicative Error Model; Point-Mass Mixture; Semiparametric Specification Test
Pagenumber:34
HeBIS PPN:279890907
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:C14 Semiparametric and Nonparametric Methods
C16 Specific Distributions
C22 Time-Series Models; Dynamic Quantile Regressions (Updated!)
C25 Discrete Regression and Qualitative Choice Models; Discrete Regressors (Updated!)
C51 Model Construction and Estimation
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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