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Econometrics of Testing for Jumps in Financial Economics Using Bipower Variation

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  • Ole E. Barndorff-Nielsen
  • Neil Shephard

Abstract

In this article we provide an asymptotic distribution theory for some nonparametric tests of the hypothesis that asset prices have continuous sample paths. We study the behaviour of the tests using simulated data and see that certain versions of the tests have good finite sample behavior. We also apply the tests to exchange rate data and show that the null of a continuous sample path is frequently rejected. Most of the jumps the statistics identify are associated with governmental macroeconomic announcements. Copyright 2006, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/jjfinec/nbi022
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Bibliographic Info

Article provided by Society for Financial Econometrics in its journal Journal of Financial Econometrics.

Volume (Year): 4 (2006)
Issue (Month): 1 ()
Pages: 1-30

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Handle: RePEc:oup:jfinec:v:4:y:2006:i:1:p:1-30

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  1. Ole E. Barndorff-Nielsen & Neil Shephard, 2002. "Power Variation and Time Change," Economics Papers, Economics Group, Nuffield College, University of Oxford 2002-W24, Economics Group, Nuffield College, University of Oxford.
  2. 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, Duke University, Department of Economics 02-16, Duke University, Department of Economics.
  3. Ole E. Barndorff-Nielsen & Neil Shephard, 2004. "A Feasible Central Limit Theory for Realised Volatility Under Leverage," Economics Papers, Economics Group, Nuffield College, University of Oxford 2004-W03, Economics Group, Nuffield College, University of Oxford.
  4. Back, Kerry, 1991. "Asset pricing for general processes," Journal of Mathematical Economics, Elsevier, Elsevier, vol. 20(4), pages 371-395.
  5. Mikhail Chernov & A. Ronald Gallant & Eric Ghysels & George Tauchen, 2002. "Alternative Models for Stock Price Dynamics," CIRANO Working Papers, CIRANO 2002s-58, CIRANO.
  6. Ghysels, E. & Harvey, A. & Renault, E., 1996. "Stochastic Volatility," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9613, Universite de Montreal, Departement de sciences economiques.
  7. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2003. "Modeling and Forecasting Realized Volatility," Econometrica, Econometric Society, Econometric Society, vol. 71(2), pages 579-625, March.
  8. Ole E. Barndorff-Nielsen, 2004. "Power and Bipower Variation with Stochastic Volatility and Jumps," Journal of Financial Econometrics, Society for Financial Econometrics, Society for Financial Econometrics, vol. 2(1), pages 1-37.
  9. Jeannette H.C. Woerner, 2003. "Estimation of Integrated Volatility in Stochastic Volatility Models," OFRC Working Papers Series, Oxford Financial Research Centre 2003mf05, Oxford Financial Research Centre.
  10. Ederington, Louis H & Lee, Jae Ha, 1993. " How Markets Process Information: News Releases and Volatility," Journal of Finance, American Finance Association, American Finance Association, vol. 48(4), pages 1161-91, September.
  11. Neil Shephard, 2005. "Stochastic volatility," Economics Series Working Papers, University of Oxford, Department of Economics 2005-W17, University of Oxford, Department of Economics.
  12. Ole E. Barndorff-Nielsen & Shephard, 2002. "Econometric analysis of realized volatility and its use in estimating stochastic volatility models," Journal of the Royal Statistical Society Series B, Royal Statistical Society, Royal Statistical Society, vol. 64(2), pages 253-280.
  13. Ait-Sahalia, Yacine, 2004. "Disentangling diffusion from jumps," Journal of Financial Economics, Elsevier, Elsevier, vol. 74(3), pages 487-528, December.
  14. Bandi, Federico M. & Nguyen, Thong H., 2003. "On the functional estimation of jump-diffusion models," Journal of Econometrics, Elsevier, Elsevier, vol. 116(1-2), pages 293-328.
  15. Ole E. Barndorff-Nielsen & Neil Shephard, 2002. "Econometric analysis of realised covariation: high frequency covariance, regression and correlation in financial economics," OFRC Working Papers Series, Oxford Financial Research Centre 2002fe03, Oxford Financial Research Centre.
  16. René Garcia & Eric Ghysels & Éric Renault, 2004. "The Econometrics of Option Pricing," CIRANO Working Papers, CIRANO 2004s-04, CIRANO.
  17. Ole E. Barndorff-Nielsen & Neil Shephard, 2001. "How accurate is the asymptotic approximation to the distribution of realised volatility?," Economics Papers, Economics Group, Nuffield College, University of Oxford 2001-W16, Economics Group, Nuffield College, University of Oxford.
  18. Neil Shephard & Ole E. Barndorff-Nielsen, 2003. "Power and bipower variation with stochastic volatility and jumps," Economics Series Working Papers, University of Oxford, Department of Economics 2003-W18, University of Oxford, Department of Economics.
  19. Bates, David S, 1996. "Jumps and Stochastic Volatility: Exchange Rate Processes Implicit in Deutsche Mark Options," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 9(1), pages 69-107.
  20. Neil Shephard & Ole E. Barndorff-Nielsen, 2002. "Realised power variation and stochastic volatility models," Economics Series Working Papers, University of Oxford, Department of Economics 2001-W18, University of Oxford, Department of Economics.
  21. Ole E. Barndorff-Nielsen & Svend Erik Graversen & Neil Shephard, 2003. "Power variation & stochastic volatility: a review and some new results," Economics Papers, Economics Group, Nuffield College, University of Oxford 2003-W19, Economics Group, Nuffield College, University of Oxford.
  22. Ole E. Barndorff-Nielsen & Neil Shephard, 2001. "Non-Gaussian Ornstein-Uhlenbeck-based models and some of their uses in financial economics," Journal of the Royal Statistical Society Series B, Royal Statistical Society, Royal Statistical Society, vol. 63(2), pages 167-241.
  23. Andersen, Torben G & Bollerslev, Tim, 1998. "Answering the Skeptics: Yes, Standard Volatility Models Do Provide Accurate Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 885-905, November.
  24. Lan Zhang & Per A. Mykland & Yacine Ait-Sahalia, 2003. "A Tale of Two Time Scales: Determining Integrated Volatility with Noisy High Frequency Data," NBER Working Papers 10111, National Bureau of Economic Research, Inc.
  25. Bollerslev, Tim & Zhou, Hao, 2002. "Estimating stochastic volatility diffusion using conditional moments of integrated volatility," Journal of Econometrics, Elsevier, Elsevier, vol. 109(1), pages 33-65, July.
  26. Chamberlain, Gary, 1988. "Asset Pricing in Multiperiod Securities Markets," Econometrica, Econometric Society, Econometric Society, vol. 56(6), pages 1283-1300, November.
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