Multistate asymmetric ACD model: an application to order dynamics in the EUR/PLN spot market

Abstract

This paper examines a process of order submissions and cancellations in the interbank order driven market of the EUR/PLN currency pair. Our contribution to the existing literature is twofold. We generalize the Asymmetric ACD model (AACD) of Bauwens & Giot (2003) with respect to more than two competing risks. It results in the flexible multistate econometric model for durations between moments in which order submissions or cancellations take place. Thanks to the Multistate AACD model we are able to examine timing of order submissions/cancellations that (1) take place on different sides of the market and (2) vary according to the level of order aggressiveness. We show how to simulate from the proposed Multistate Asymmetric ACD model, which enables us to study the transition probabilities between selected events. We investigate different market microstructure factors that exert an influence on the intraday pattern of order submission or cancellation strategies.asymmetric ACD model, order dynamics, intraday liquidity