Order Arrival, Quote Behavior, and the Return‐Generating Process

Order Arrival, Quote Behavior, and the Return‐Generating Process ABSTRACT This paper establishes three empirical results. We find positive autocorrelation in actual intra‐day stock returns, in intra‐day returns computed from quote midpoints, and in the arrival of buy and sell orders. We present a model of return generation that incorporates these features via lagged adjustment of the limit‐order price and positive dependence in bid and ask transactions. The return model is observationally equivalent to an ARMA process, which is consistent with the observed return behavior. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Order Arrival, Quote Behavior, and the Return‐Generating Process

The Journal of Finance, Volume 42 (4) – Sep 1, 1987

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Publisher
Wiley
Copyright
1987 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
D.O.I.
10.1111/j.1540-6261.1987.tb03926.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT This paper establishes three empirical results. We find positive autocorrelation in actual intra‐day stock returns, in intra‐day returns computed from quote midpoints, and in the arrival of buy and sell orders. We present a model of return generation that incorporates these features via lagged adjustment of the limit‐order price and positive dependence in bid and ask transactions. The return model is observationally equivalent to an ARMA process, which is consistent with the observed return behavior.

Journal

The Journal of FinanceWiley

Published: Sep 1, 1987

References

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