Time-varying mixing weights in mixture autoregressive conditional duration models

Financial market price formation and exchange activity can be investigated by means of ultra-high frequency data. In this article, we investigate an extension of the Autoregressive Conditional Duration (ACD) model of Engle and Russell (Citation1998) by adopting a mixture of distribution approach with time-varying weights. Empirical estimation of the Mixture ACD model shows that the limitations of the standard base model and its inadequacy of modelling the behavior in the tail of the distribution are suitably solved by our model. When the weights are made dependent on some market activity data, the model lends itself to some structural interpretation related to price formation and information diffusion in the market.