Modeling Comovements in Trading Intensities to Distinguish Sector and Stock Specific News

In this paper we propose a bivariate model for the trading intensities of stocks in a particular industry.The model consists of a univariate duration model for trades in either of the stocks and a probit-specification for which of the two stocks is traded.We apply the model to the trading intensities of stocks of US department store operators listed on the NYSE, using high frequency transaction data during the period August 1 until October 31, 1999.We establish significant comovements in the trading intensities of US department stocks, which we explain by distinguishing sector and stock specific news contained in the trading intensities.We provide estimates of the amounts of sector and stock specific news contained in the trading intensities and show that all stocks under consideration convey both sector and stock specific news.