On the dependence structure of the trade/no trade sequence of illiquid assets

Research output: Contribution to journalArticlepeer-review

Abstract

In this paper, we propose to consider the dependence structure of the trade/no trade categorical sequence of individual illiquid stocks returns. The framework considered here is wide as constant and time-varying zero returns probability are allowed. The ability of our approach in highlighting illiquid stock’s features is underlined for a variety of situations. More specifically, we show that long-run effects for the trade/no trade categorical sequence may be spuriously detected in presence of a non-constant zero returns probability. Monte Carlo experiments, and the analysis of stocks taken from the Chilean financial market, illustrate the usefulness of the tools developed in the paper.

Original languageEnglish
JournalCommunications in Statistics - Theory and Methods
DOIs
StateAccepted/In press - 2022
Externally publishedYes

Keywords

  • Categorical financial time series
  • Serial dependence
  • Time-varying illiquidity levels

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