Torben B. Rasmussen () (Aarhus University and CREATES)
Abstract
Asymptotic properties of jump tests rely on the property that any jump occurs within a single time interval no matter what the observation frequency is. Market microstructure effects in relation to news-induced revaluation of the underlying variable is likely to make this an unrealistic assumption for high-frequency transaction data. To capture these microstructure effects, this paper suggests a model in which market prices adjust gradually to jumps in the underlying effcient price. A case study illustrates the empirical relevance of the model, and the performance of different jump tests is investigated here and in a simulation study. Evidence indicates that tests based on the largest of scaled price increments perform better than tests comparing measures of variability. Resolving the matter by testing at lower frequencies turns out to be less straightforward.
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Publisher Info
Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number
2009-08.
Find related papers by JEL classification: C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
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