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On the iterative plug-in algorithm for estimating diurnal patterns of financial trade durations

Author

Listed:
  • Yuanhua Feng

    (University of Paderborn)

  • Sarah Forstinger

    (University of Paderborn)

  • Christian Peitz

    (University of Paderborn)

Abstract

This paper discusses the detailed performance of an iterative plug-in (IPI) bandwidth selector for estimating the diurnal duration pattern in a recently proposed semiparametric autoregressive conditional duration (SemiACD) model. For this purpose an alternative formula of the asymptotically optimal bandwidth is proposed. A large simulation study was carried out based on this new formula. The effect of different factors, which affect the selected bandwidth is discussed in detail. It is shown that the proposed IPI algorithm works very well in practice and that the SemiACD model in general, is clearly superior to the parametric ACD model, if there is a deterministic trend in the duration data. It is also shown that the quality of the bandwidth selection, the diurnal pattern estimate and the parametric estimation will all be clearly improved, if the sample size is enlarged. Furthermore, according to the goodness-of-fit of the estimated diurnal pattern, a best combination of the above mentioned factors is found.

Suggested Citation

  • Yuanhua Feng & Sarah Forstinger & Christian Peitz, 2013. "On the iterative plug-in algorithm for estimating diurnal patterns of financial trade durations," Working Papers CIE 66, Paderborn University, CIE Center for International Economics.
    • Handle: RePEc:pdn:ciepap:66
    as

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    File URL: http://groups.uni-paderborn.de/wp-wiwi/RePEc/pdf/ciepap/WP66.pdf
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    References listed on IDEAS

    as
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    Cited by:

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    More about this item

    Keywords

    Autoregressive conditional duration; diurnal duration patterns; local linear estimator; iterative plug-in; simulation;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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