Modeling stock trading day effects under flow day-of-week effect constraints

Abstract

By deriving an invertible linear relation between stock and flow trading day regression coefficients, we show how flow day-of-week effect constraints can be imposed upon the day-of-weekeffect component of the stock trading day model of Bell used in X-12-ARIMA. As an application, a new one-coefficient stock trading day model is derived from the constraints that give rise to the one-coefficient weekday-weekend-contrast flow trading day model of TRAMO and X-12-ARIMA. We present summary results and some details of a quite successful application of the new model to the manufacturers ’ inventory series of the U.S. Census Bureau’s M3 Survey. (JEL