Analysis of Financial Time Series, Third Edition

Chapter 5

High-Frequency Data Analysis and Market Microstructure

High-frequency data are observations taken at fine time intervals. In finance, they often mean observations taken daily or at a finer time scale. These data have become available primarily due to advances in data acquisition and processing techniques, and they have attracted much attention because they are important in empirical study of market microstructure and realized volatility. The ultimate high-frequency data in finance are the transaction-by-transaction or trade-by-trade data in security markets. Here time is often measured in seconds. The Trades and Quotes (TAQ) database of the New York Stock Exchange (NYSE) contains all equity transactions reported on the Consolidated Tape from 1992 to the present, which includes transactions on the NYSE, AMEX, NASDAQ, and the regional exchanges. The Berkeley Options Data Base provides similar data for options transactions from August 1976 to December 1996. More high-frequency options data are also available; see the website of Chicago Board Options Exchange. Transactions data for many other securities and markets, both domestic and foreign, are continuously collected and processed. Wood (2000) provides some historical perspective of high-frequency financial study.

High-frequency financial data are important in studying a variety of issues related to the trading process and market microstructure. They can be used to compare the efficiency of different trading systems in ...