Econometric Analysis of Financial Transaction Data : Pitfalls and Opportunities

The recent availability of large data sets covering single transactions on financial markets has created a new branch of econometrics which has opened up a new door of looking at the microstructure of financial markets and its dynamics. The specific nature of transaction data such as the randomness of arrival times of trades, the discreteness of price jumps and significant intraday seasonalities, call for specific econometric tools combining both time series techniques as well as microeconometric techniques arising from discrete choice analysis. This paper serves as an introduction to the econometrics of transaction data. We survey the state of the art and discuss its pitfalls and opportunities. Special emphasis is given to the analysis of the properties of data from various assets and trading mechanisms