Institute of Information Theory and Automation

Publication details

Modeling and Forecasting Persistent Financial Durations

Journal Article

Žikeš F., Baruník Jozef, Shenai N.

serial: Econometric Reviews

project(s): GA13-32263S, GA ČR, 612955,

keywords: price durations, long memory, multifractal models, realized volatility, Whittle estimation

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abstract (eng):

This paper introduces the Markov-Switching Multifractal Duration (MSMD) model by adapting the MSM stochastic volatility model of Calvet and Fisher (2004) to the duration setting. Although the MSMD process is exponential β-mixing as we show in the paper, it is capable of generating highly persistent autocorrelation. We study analytically and by simulation how this feature of durations generated by the MSMD process propagates to counts and realized volatility. We employ a quasi-maximum likelihood estimator of the MSMD parameters based on the Whit- tle approximation and establish its strong consistency and asymptotic normality for general MSMD specifications. We show that the Whittle estimation is a computa- tionally simple and fast alternative to maximum likelihood. Finally, we compare the performance of the MSMD model with competing short- and long-memory duration models in an out-of-sample forecasting exercise based on price durations of three major foreign exchange futures contracts.


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Last modification: 21.12.2012
Institute of Information Theory and Automation