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Abstract

We test for price discontinuities, or jumps, in a panel of high-frequency intraday stock returns and an equiweighted index constructed from the same stocks. Using a new test for common jumps that explicitly utilizes the cross-covariance structure in the returns to identify non-diversifiable jumps, we find strong evidence for many modest-sized, yet highly significant, cojumps that simply pass through standard jump detection statistics when applied on a stock-by-stock basis. Our results are further corroborated by a striking within-day pattern in the significant cojumps, with a sharp peak at the time of regularly scheduled macroeconomic news announcements.

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File URL: http://www.sciencedirect.com/science/article/B6VC0-4RTW3XX-1/1/e8819b166ed1623dd8b4e697eee37635
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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 144 (2008)
Issue (Month): 1 (May)
Pages: 234-256

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Handle: RePEc:eee:econom:v:144:y:2008:i:1:p:234-256

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Web page: http://www.elsevier.com/locate/jeconom

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Find related papers by JEL classification:

• C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
• C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
• C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
• G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
• G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

References

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1. Yacine Aït-Sahalia, 2005. "How Often to Sample a Continuous-Time Process in the Presence of Market Microstructure Noise," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 351-416.
   
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   • Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2006. "Real-time price discovery in global stock, bond and foreign exchange markets," International Finance Discussion Papers 871, Board of Governors of the Federal Reserve System (U.S.).
   • Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2007. "Real-Time Price Discovery in Global Stock, Bond and Foreign Exchange Markets," CREATES Research Papers 2007-20, School of Economics and Management, University of Aarhus.
3. Suzanne S. Lee & Per A. Mykland, 2008. "Jumps in Financial Markets: A New Nonparametric Test and Jump Dynamics," Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2535-2563, November.
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   • Ole E. Barndorff-Nielsen & Neil Shephard, 2006. "Econometrics of Testing for Jumps in Financial Economics Using Bipower Variation," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(1), pages 1-30.
   • Ole E. Barndorff-Nielsen & Neil Shephard, 2004. "Econometrics of testing for jumps in financial economics using bipower variation ," OFRC Working Papers Series 2004fe01, Oxford Financial Research Centre.
7. Ole E. Barndorff-Nielsen & Neil Shephard, 2003. "Power and bipower variation with stochastic volatility and jumps," Economics Papers 2003-W17, Economics Group, Nuffield College, University of Oxford.
   
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8. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold, 2005. "Roughing it Up: Including Jump Components in the Measurement, Modeling and Forecasting of Return Volatility," NBER Working Papers 11775, National Bureau of Economic Research, Inc.
   
   • Torben G. Andersen & Tim Bollerslev & Francis X. Diebold, 2007. "Roughing It Up: Including Jump Components in the Measurement, Modeling, and Forecasting of Return Volatility," The Review of Economics and Statistics, MIT Press, vol. 89(4), pages 701-720, November.
   • Torben G. Andersen & Tim Bollerslev & Francis X. Diebold, 2007. "Roughing It Up: Including Jump Components in the Measurement, Modeling and Forecasting of Return Volatility," CREATES Research Papers 2007-18, School of Economics and Management, University of Aarhus.
9. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange?," Center for Financial Institutions Working Papers 02-23, Wharton School Center for Financial Institutions, University of Pennsylvania.
   
   • Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," American Economic Review, American Economic Association, vol. 93(1), pages 38-62, March.
   • Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," Working Papers 02-16, Duke University, Department of Economics.
   • Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," NBER Working Papers 8959, National Bureau of Economic Research, Inc.
   • Anderson, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," Working Papers 02-1, University of Pennsylvania, Wharton School, Weiss Center.
10. Hansen, Peter R. & Lunde, Asger, 2006. "Realized Variance and Market Microstructure Noise," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 127-161, April.
11. Harris, Lawrence, 1990. "Estimation of Stock Price Variances and Serial Covariances from Discrete Observations," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(03), pages 291-306, September.
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    • Torben G. Andersen & Tim Bollerslev & Francis X. Diebold, 2002. "Parametric and Nonparametric Volatility Measurement," Center for Financial Institutions Working Papers 02-27, Wharton School Center for Financial Institutions, University of Pennsylvania.
13. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2005. "Real-Time Price Discovery in Stock, Bond and Foreign Exchange Markets," NBER Working Papers 11312, National Bureau of Economic Research, Inc.
    
    • Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2004. "Real-Time Price Discovery in Stock, Bond and Foreign Exchange Markets," CFS Working Paper Series 2004/19, Center for Financial Studies.
    • Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Real-Time Price Discovery in Stock, Bond and Foreign Exchange Markets," PIER Working Paper Archive 04-028, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 28 Jun 2004.
14. Harris, Lawrence, 1986. "A transaction data study of weekly and intradaily patterns in stock returns," Journal of Financial Economics, Elsevier, vol. 16(1), pages 99-117, May.
15. Amihud, Yakov & Mendelson, Haim, 1987. " Trading Mechanisms and Stock Returns: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 42(3), pages 533-53, July.
16. Harris, Lawrence, 1991. "Stock Price Clustering and Discreteness," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 389-415.

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