High-frequency data analysis (PDF)

Seminar paper from the year 2003 in the subject Mathematics - Statistics, grade: 2.0 (B), European University Viadrina Frankfurt (Oder), language: English, abstract: Today the financial market becomes more complex and includes more competition.
Reasons are trends like globalization, liberalization and lower-cost trading
mechanism. The market microstructure research has the aim of an efficient market. It
is focused on the structure of the financial market. The investigation becomes
possible through the availability of high- frequency data. Those data exist especially
in the United States and like that most of the research focuses this market. To explain
the phenomena, which have been found adequate, models that fit the characteristics
of high- frequency data have to be developed.
The research is important to understand actions on the market as well as develop new
efficient mechanism. One part of the market microstructure field is the bid-ask
spread. It will be focus of this paper. In the first two parts it will be discussed
theoretically. In the last part one model will be empirically analyzed and tested on its
usefulness and validity.
The second part of this paper explains the basic elements surrounding the research of
bid-ask spread. Those are the financial market, market microstructure as well as
high-frequency data. In the following part the bid-ask spread itself, approaches,
researches and models focussing the spread will be discussed. The model of Roll
(1984) will be explained in detail. The last part will be the empirical analysis of the
model of Roll. It is analyzed with data from the NASDAQ.