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Order Arrival, Quote Behavior, and the Return‐Generating Process
Author(s) -
HASBROUCK JOEL,
HO THOMAS S. Y.
Publication year - 1987
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1987.tb03926.x
Subject(s) - autocorrelation , stock (firearms) , econometrics , absolute return , order (exchange) , economics , limit (mathematics) , mathematics , financial economics , computer science , statistics , investment performance , microeconomics , finance , return on investment , engineering , mathematical analysis , mechanical engineering , production (economics)
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.