Arbeitspapier

Modelling high-frequency volatility and liquidity using multiplicative error models

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.

Language
Englisch

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

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

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

Handle
Last update
10.03.2025, 11:42 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Hautsch, Nikolaus
  • Jeleskovic, Vahidin
  • Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk

Time of origin

  • 2008

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