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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