3.4 Extend the Roll (1984) model to allow for a serially correlated order- type indicator variable. In particular, let I, be a two-state Markov with -1 and 1 as the two states, and derive expressions for the moments of AP, in terms of s and the transition probabilities of I. How do these results differ from the IID case? How would you reinterpret Roll's (1984) findings in light of this more general model of bid-ask bounce?
3.4 Extend the Roll (1984) model to allow for a serially correlated order- type indicator variable. In particular, let I, be a two-state Markov with -1 and 1 as the two states, and derive expressions for the moments of AP, in terms of s and the transition probabilities of I. How do these results differ from the IID case? How would you reinterpret Roll's (1984) findings in light of this more general model of bid-ask bounce?
Linear Algebra: A Modern Introduction
4th Edition
ISBN:9781285463247
Author:David Poole
Publisher:David Poole
Chapter3: Matrices
Section3.7: Applications
Problem 9EQ
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