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A simple linear alternative to multiplicative error models with an application to trading volume

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Clements, A, Hurn, S and Volkov, V ORCID: 0000-0001-9721-9700 2021 , A simple linear alternative to multiplicative error models with an application to trading volume.

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Abstract

Forecasting intraday trading volume is an important problem in economics and finance. One
influential approach to achieving this objective is the non-linear Component Multiplicative
Error Model (CMEM) that captures time series dependence and intraday periodicity in
volume. While the model is well suited to dealing with a non-negative time series, it is
relatively cumbersome to implement. This paper proposes a system of linear equations,
that is estimated using ordinary least squares, and provides at least as good a forecasting
performance as that of the CMEM. This linear specification can easily be applied to model
any time series that exhibits diurnal behaviour.

Item Type: Report (Discussion Paper)
Authors/Creators:Clements, A and Hurn, S and Volkov, V
Keywords: Volume, forecasting, high-frequency data, CMEM, diurnal.
Publisher: University of Tasmania
Copyright Information:

Copyright 2021 University of Tasmania

Additional Information:

Discussion Paper Series N 2021-06
JEL Classification: C22, G00

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