Modelling high-frequency volatility and liquidity using multiplicative error models

Arbeitspapier

In this paper, we study the dynamic interdependencies between high-frequency volatility, liquidity demand as well as trading costs in an electronic limit order book market. Using data from the Australian Stock Exchange we model 1-min squared mid-quote returns, average trade sizes, number of trades and average (excess) trading costs per time interval in terms of a four-dimensional multiplicative error model. The latter is augmented to account also for zero observations. We find evidence for significant contemporaneous relationships and dynamic interdependencies between the individual variables. Liquidity is causal for future volatility but not vice versa. Furthermore, trade sizes are negatively driven by past trading intensities and trading costs. Finally, excess trading costs mainly depend on their own history.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB 649 Discussion Paper ; No. 2008,047

Classification and Topics

• Classification: Wirtschaft ; Estimation: General ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Model Evaluation, Validation, and Selection
• Subject: Multiplicative error models ; volatility ; liquidity ; high-frequency data ; Börsenkurs ; Volatilität ; Börsenumsatz ; Marktliquidität ; Fehlerkorrekturmodell ; Aktienmarkt ; Zeitreihenanalyse ; Schätzung ; Australien

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hautsch, Nikolaus ; Jeleskovic, Vahidin
• Event: Veröffentlichung
• (who): Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
• (where): Berlin
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/25287
• Last update: 10.03.2025, 11:42 AM CET