TY - JOUR
AU - Hausman,Jerry A.
AU - Lo,Andrew W.
AU - MacKinlay,A. Craig
TI - An Ordered Probit Analysis of Transaction Stock Prices
JF - National Bureau of Economic Research Working Paper Series
VL - No. 3888
PY - 1991
Y2 - October 1991
DO - 10.3386/w3888
UR - http://www.nber.org/papers/w3888
L1 - http://www.nber.org/papers/w3888.pdf
N1 - Author contact info:
Jerry A. Hausman
Department of Economics, E52-518
MIT
77 Massachusetts Avenue
Cambridge, MA 02139
Tel: 617/253-3644
Fax: 617/253-1330
E-Mail: jhausman@mit.edu
Andrew W. Lo
MIT Sloan School of Management
100 Main Street, E62-618
Cambridge, MA 02142
Tel: 617/253-0920
Fax: 781/891-9783
E-Mail: alo-admin@mit.edu
A. Craig MacKinlay
Department of Finance
The Wharton School
University of Pennsylvania
3255 Steinberg-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6367
Tel: (215) 898-5309
E-Mail: acmack@wharton.upenn.edu
AB - We estimate the conditional distribution of trade-to-trade price changes using ordered probit, a statistical model for discrete random variables. Such an approach takes into account the fact that transaction price changes occur in discrete increments, typically eighths of a dollar, and occur at irregularly spaced time intervals. Unlike existing continuous-time/discrete-state models of discrete transaction prices, ordered probit can capture the effects of other economic variables on price changes, such as volume, past price changes, and the time between trades. Using 1988 transactions data for over 100 randomly chosen U.S. stocks, we estimate the ordered probit model via maximum likelihood and use the parameter estimates to measure several transaction-related quantities, such as the price impact of trades of a given size, the tendency towards price reversals from one transaction to the next, and the empirical significance of price discreteness.
ER -