A Markov-switching multifractal inter-trade duration model, with application to US equities

We propose and illustrate a Markov-switching multi-fractal duration (MSMD) model for analysis of inter-trade durations in financial markets. We establish several of its key properties with emphasis on high persistence (indeed long memory). Empirical exploration suggests MSMD’s superiority relative to leading competitors. Acknowledgments: For outstanding research assistance we thank Matthew Klein. For financial support we thank the U.S. National Science Foundation and the Wharton Financial Institutions Center. For helpful comments we thank Emily Fox, Aureo de Paula and Kevin Song, and seminar participants at the University of Pennsylvania. All errors are ours alone.