We propose a simple non-equilibrium model of a financial market as an open system with a possible exchange of money with an outside world and market frictions (trade impacts) incorporated into asset price dynamics via a feedback mechanism. Using a linear market impact model, this produces a...

Recent crises have focused interest on methods to improve the functioning of financial markets. In this context it would be prudent to evaluate the effects of previous changes. Previous research on decimalization of tick size, a significant microstructure change, mostly examines its effects on...

An asymmetric multivariate generalization of the recently proposed class of normal mixture GARCH models is developed. Issues of parametrization and estimation are discussed. Conditions for covariance stationarity and the existence of the fourth moment are derived, and expressions for the dynamic...

We develop a multivariate generalization of the Markov-switching GARCH model introduced by Haas, Mittnik, and Paolella (2004b) and derive its fourth-moment structure. An application to international stock markets illustrates the relevance of accounting for volatility regimes from both a...

The wavelet transform is used to identify a biannual and an annual seasonality in the Phelix Day Peak and to separate the long-term trend from its short-term motion. The short-term/long-term model for commodity prices of Schwartz & Smith (2000) is applied but generalised to account for weekly...

We model trades-through, i.e. transactions that reach at least the second level of limit orders in an order book. Using tick-by-tick data on Euronext-traded stocks, we show that a simple bivariate Hawkes process fits nicely our empirical observations of trades-through. We show that the...

The linear Gaussian state space model for which the common variance istreated as a stochastic time-varying variable is considered for themodelling of economic time series. The focus of this paper is on thesimultaneous estimation of parameters related to the stochasticprocesses of the mean part...

In this discussion paper we introduce time-varying parameters in the dynamic Nelson–Siegel yield curve model for the simultaneous analysis and forecasting of interest rates of different maturities. The Nelson–Siegel model has been recently reformulated as a dynamic factor model with vector...

In this paper we replace the Gaussian errors in the standard Gaussian, linear state space model with stochastic volatility processes. This is called a GSSF-SV model. We show that conventional MCMC algorithms for this type of model are ineffective, but that this problem can be removed by...

We propose a new class of observation driven time series models referred to as Generalized Autoregressive Score (GAS) models. The driving mechanism of the GAS model is the scaled score of the likelihood function. This approach provides a unified and consistent framework for introducing...