Title: Zero-Inflated Autoregressive Conditional Duration Model for Discrete Trade Durations with Excessive Zeros,
Abstract: In finance, durations between successive transactions are usually modeled by
the autoregressive conditional duration model based on a continuous
distribution omitting frequent zero values. Zero durations can be caused by
either split transactions or independent transactions. We propose a discrete
model allowing for excessive zero values based on the zero-inflated negative
binomial distribution with score dynamics. We establish the invertibility of
the score filter. Additionally, we derive sufficient conditions for the
consistency and asymptotic normality of the maximum likelihood of the model
parameters. In an empirical study of DJIA stocks, we find that split
transactions cause on average 63% of zero values. Furthermore, the loss of
decimal places in the proposed model is less severe than incorrect treatment of
zero values in continuous models.