IDEAS home Printed from https://ideas.repec.org/a/oup/jfinec/v1y2003i2p159-188.html
   My bibliography  Save this article

Trades and Quotes: A Bivariate Point Process

Author

Listed:
  • Robert F. Engle
  • Asger Lunde

Abstract

This article formulates a bivariate point process to jointly analyze trade and quote arrivals. In microstructure models, trades may reveal private information that is then incorporated into new price quotes. This article examines the speed of this information flow and the circumstances that govern it. A joint likelihood function for trade and quote arrivals is specified in a way that recognizes that an intervening trade sometimes censors the time between a trade and the subsequent quote. Models of trades and quotes are estimated for eight stocks using Trade and Quote database (TAQ) data. The essential finding for the arrival of price quotes is that information flow variables, such as high trade arrival rates, large volume per trade, and wide bid--ask spreads, all predict more rapid price revisions. This means prices respond more quickly to trades when information is flowing so that the price impacts of trades and ultimately the volatility of prices are high in such circumstances. , .

Suggested Citation

  • Robert F. Engle & Asger Lunde, 2003. "Trades and Quotes: A Bivariate Point Process," Journal of Financial Econometrics, Oxford University Press, vol. 1(2), pages 159-188.
    • Handle: RePEc:oup:jfinec:v:1:y:2003:i:2:p:159-188
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Alfonso Dufour & Robert F. Engle, 2000. "Time and the Price Impact of a Trade," Journal of Finance, American Finance Association, vol. 55(6), pages 2467-2498, December.
    2. Lee, Charles M C & Ready, Mark J, 1991. "Inferring Trade Direction from Intraday Data," Journal of Finance, American Finance Association, vol. 46(2), pages 733-746, June.
    3. White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, vol. 50(1), pages 1-25, January.
    4. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    5. Diamond, Douglas W. & Verrecchia, Robert E., 1987. "Constraints on short-selling and asset price adjustment to private information," Journal of Financial Economics, Elsevier, vol. 18(2), pages 277-311, June.
    6. Robert F. Engle & Joe Lange, 1997. "Measuring, Forecasting and Explaining Time Varying Liquidity in the Stock Market," NBER Working Papers 6129, National Bureau of Economic Research, Inc.
    7. Robert F. Engle, 2000. "The Econometrics of Ultra-High Frequency Data," Econometrica, Econometric Society, vol. 68(1), pages 1-22, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. N. Taylor & Y. Xu, 2017. "The logarithmic vector multiplicative error model: an application to high frequency NYSE stock data," Quantitative Finance, Taylor & Francis Journals, vol. 17(7), pages 1021-1035, July.
    2. Engle, Robert F. & Patton, Andrew J., 2004. "Impacts of trades in an error-correction model of quote prices," Journal of Financial Markets, Elsevier, vol. 7(1), pages 1-25, January.
    3. Manganelli, Simone, 2005. "Duration, volume and volatility impact of trades," Journal of Financial Markets, Elsevier, vol. 8(4), pages 377-399, November.
    4. Manganelli, Simone, 2005. "Duration, volume and volatility impact of trades," Journal of Financial Markets, Elsevier, vol. 8(4), pages 377-399, November.
    5. Nowak, Sylwia & Anderson, Heather M., 2014. "How does public information affect the frequency of trading in airline stocks?," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 26-38.
    6. David Easley & Robert F. Engle & Maureen O'Hara & Liuren Wu, 2008. "Time-Varying Arrival Rates of Informed and Uninformed Trades," Journal of Financial Econometrics, Oxford University Press, vol. 6(2), pages 171-207, Spring.
    7. Yang, Joey Wenling, 2011. "Transaction duration and asymmetric price impact of trades--Evidence from Australia," Journal of Empirical Finance, Elsevier, vol. 18(1), pages 91-102, January.
    8. Bredin, Don & Hyde, Stuart & Muckley, Cal, 2014. "A microstructure analysis of the carbon finance market," International Review of Financial Analysis, Elsevier, vol. 34(C), pages 222-234.
    9. Sylwia Nowak, 2008. "How Do Public Announcements Affect The Frequency Of Trading In U.S. Airline Stocks?," CAMA Working Papers 2008-38, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    10. Rzayev, Khaladdin & Ibikunle, Gbenga, 2019. "A state-space modeling of the information content of trading volume," Journal of Financial Markets, Elsevier, vol. 46(C).
    11. Dionne, Georges & Duchesne, Pierre & Pacurar, Maria, 2009. "Intraday Value at Risk (IVaR) using tick-by-tick data with application to the Toronto Stock Exchange," Journal of Empirical Finance, Elsevier, vol. 16(5), pages 777-792, December.
    12. Jondeau, Eric & Lahaye, Jérôme & Rockinger, Michael, 2015. "Estimating the price impact of trades in a high-frequency microstructure model with jumps," Journal of Banking & Finance, Elsevier, vol. 61(S2), pages 205-224.
    13. Kul B. Luintel & Yongdeng Xu, 2017. "Testing weak exogeneity in multiplicative error models," Quantitative Finance, Taylor & Francis Journals, vol. 17(10), pages 1617-1630, October.
    14. Alfonso Dufour & Robert F Engle, 2000. "The ACD Model: Predictability of the Time Between Concecutive Trades," ICMA Centre Discussion Papers in Finance icma-dp2000-05, Henley Business School, University of Reading.
    15. Ferriani, Fabrizio, 2010. "Informed and uninformed traders at work: evidence from the French market," MPRA Paper 24487, University Library of Munich, Germany.
    16. Grammig, Joachim & Theissen, Erik & Wuensche, Oliver, 2007. "Time and price impact of a trade: A structural approach," CFR Working Papers 07-12, University of Cologne, Centre for Financial Research (CFR).
    17. Chen, Tao & Li, Jie & Cai, Jun, 2008. "Information content of inter-trade time on the Chinese market," Emerging Markets Review, Elsevier, vol. 9(3), pages 174-193, September.
    18. Bowe, Michael & Hyde, Stuart & McFarlane, Lavern, 2013. "Duration, trading volume and the price impact of trades in an emerging futures market," Emerging Markets Review, Elsevier, vol. 17(C), pages 89-105.
    19. Iordanis Kalaitzoglou & Boulis Maher Ibrahim, 2010. "Does Order Flow in the European Carbon Allowances Market Reveal Information?," CFI Discussion Papers 1003, Centre for Finance and Investment, Heriot Watt University.
    20. Hujer, Reinhard & Vuletic, Sandra, 2007. "Econometric analysis of financial trade processes by discrete mixture duration models," Journal of Economic Dynamics and Control, Elsevier, vol. 31(2), pages 635-667, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:jfinec:v:1:y:2003:i:2:p:159-188. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/sofieea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.