Modeling non-stationarities in high-frequency financial time series

Ponta, Linda, Trinh, Mailan, Raberto, Marco, Scalas, Enrico and Cincotti, Silvano (2019) Modeling non-stationarities in high-frequency financial time series. Physica A: Statistical Mechanics and its Applications, 521. pp. 173-196. ISSN 0378-4371

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Abstract

We study tick-by-tick financial returns for the FTSE MIB index of the Italian Stock Exchange (Borsa Italiana). We confirm previously detected non-stationarities. Scaling properties reported before for other high-frequency financial data are only approximately valid. As a consequence of our empirical analyses, we propose a simple model for non-stationary returns, based on a non-homogeneous normal compound Poisson process. It turns out that our model can approximately reproduce several stylized facts of high-frequency financial time series. Moreover, using Monte Carlo simulations, we analyze order selection for this class of models using three information criteria: Akaike’s information criterion (AIC), the Bayesian information criterion (BIC) and the Hannan-Quinn information criterion (HQ). For comparison, we perform a similar Monte Carlo experiment for the ACD (autoregressive conditional duration) model. Our results show that the information criteria work best for small parameter numbers for the compound Poisson type models, whereas for the ACD model the model selection procedure does not work well in certain cases.

Item Type: Article
Schools and Departments: School of Mathematical and Physical Sciences > Mathematics
Research Centres and Groups: Probability and Statistics Research Group
Subjects: H Social Sciences > HG Finance > HG0101 Theory. Method. Relation to other subjects
H Social Sciences > HG Finance > HG0101 Theory. Method. Relation to other subjects > HG0106 Mathematical models
Q Science > QA Mathematics > QA0273 Probabilities. Mathematical statistics
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Depositing User: Enrico Scalas
Date Deposited: 21 Jan 2019 13:21
Last Modified: 19 Jan 2020 02:00
URI: http://sro.sussex.ac.uk/id/eprint/81410

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