Modeling Returns, Volatility, Volume, and Trade Durations using High Frequency Data

Market microstructure theory highlights two important empirical predictions about how financial asset prices evolve over time, which are: (1) trades convey information that contributes to security price movements; and (2) intensified trading activity increases price volatility. This thesis provides three essays that develop new empirical models for high frequency returns, volatility, trading volumes and trade durations in order to test these two empirical predictions. Our newly proposed models show strong support for these theoretically implied predictions and provide additional insights into the interdependence amongst returns, volatility, volumes, and trade durations.