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Transaction Data Tests of the Mixture of Distributions Hypothesis

Lawrence Harris
The Journal of Financial and Quantitative Analysis
Vol. 22, No. 2 (Jun., 1987), pp. 127-141
DOI: 10.2307/2330708
Stable URL: http://www.jstor.org/stable/2330708
Page Count: 15
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Transaction Data Tests of the Mixture of Distributions Hypothesis
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Abstract

This paper presents new tests of the mixture of distributions hypothesis. Previous tests examined security prices and volume measured only at daily intervals. Here, differential implications of the hypothesis for transaction data are derived and tested. The new predictions emanate from the assumption that prices and volume evolve at uniform rates in transaction time. The results support this assumption and the mixture of distributions hypothesis in general. In addition, the tests suggest that the daily transaction-count may be a useful instrumental variable for estimating unobserved realizations of stochastic price variances.

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