A Dynamic Integer Count Data Model for Financial Transaction Prices. Working Paper

In this paper we develop a dynamic model for integer counts to capture the dis-creteness of price changes for financial transaction prices. Our model rests on an autoregressive multinomial component for the direction of the price change and a dy-namic count data component for the size of the price changes. Since the model is capable of capturing a wide range of discrete price movements it is particularly suited for financial markets where the trading intensity is moderate or low as for most Euro-pean exchanges. We present the model at work by applying it to transaction data of the Henkel share traded at the Frankfurt stock exchange over a period of 6 months. In particular, we use the model to test some theoretical implications of the market microstructure theory on the relationship between price movements and other marks of the trading process. JEL classification: C22, C25, G1