Abstract
Andersen (J Financ 51, 169–204 (1996)) introduced a modification of the mixture of distributions model based on microstructure arguments. Based on a small sample of five stocks, he infers that this modified mixture of distributions (MMD) model adequately captures the joint behavior of trading volume and volatility. We re-examine this claim using a larger sample of twenty-two stocks and two sample periods. Our tests show that 59% of the sample rejects the MMD model in the period 1973–1991, the same period studied by Andersen. Results for the second period (1993–1999) are more supportive of the MMD, especially for number of trades, although nearly one-third of the sample still rejects the MMD. We conclude that further tests are needed before the general validity of the MMD can be established.
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