An Examination of the Role of Time and its Impact on Price Revision

David Allen, Shelton Peiris and Joey Wenling Yang

Abstract

We consider a new class of time series models (introduced by Engle and Russell (1998)) used in statistical applications in finance. These models treat the time between events (durations) as a stochastic process and the corresponding durations are modelled using a theory similar to that of autoregressive processes. On a sample of six stocks listed on the ASX, We find evidence in support of the important role that both the deterministic and stochastic components of time play in both our quote revision and signed trade equations, and it is the stochastic indicator of time that has a greater influence than the time-of-day periodicities.

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Keywords

AUTOREGRESSIVE; DURATION; STOCHASTIC PROCESS.

Contact Details David Allen School of Accounting, Finance and Economics, Edith Cowan University. Shelton Peiris Department of Mathematics, The University of Sydney. Joey Wenling Yang Financial Studies Discipline Group UWA Business School, University of Western Australia 35 Stirling Highway, Crawley, WA, 6009. E-mail: jyang@biz.uwa.edu.au

The authors would like to acknowledge the editor of AJM and the anonymous referee. The authors are also grateful to CMCRC (Capital Market Cooperate Research Centre) for providing data and financial support

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