On the dependence structure of the trade/no trade sequence of illiquid assets

02/21/2022

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by   Hamdi Raïssi, et al.

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In this paper, we propose to consider the dependence structure of the trade/no trade categorical sequence of individual illiquid stocks returns. The framework considered here is wide as constant and time-varying zero returns probability are allowed. The ability of our approach in highlighting illiquid stock's features is underlined for a variety of situations. More specifically, we show that long-run effects for the trade/no trade categorical sequence may be spuriously detected in presence of a non-constant zero returns probability. Monte Carlo experiments, and the analysis of stocks taken from the Chilean financial market, illustrate the usefulness of the tools developed in the paper.