Asymmetric ACD Models: Introducing Price Information in ACD Models with a Two State Transition Model.

This paper proposes a class of asymmetric Autoregressive Conditional Duration models, which extends the ACD model of Engle and Russell (1997). The asymmetry consists of letting the duration process depend on the state of the price process in the beginning and at the end of the each duration. If the price has increased, the parameters of the ACD can differ from what they are if the prices has decreased. Thus the model is also a transition model for the price process, with durations following an ACD process. The logarithmic version of the model is applied to the bid/ask price revision process by the specialist for the IBM stock on the New York Stock Exchange. The empirical evidence in favour of asymmetry is compelling.