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Were Stocks during the Financial Crisis More Jumpy: A Comparative Study

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  • Jan Novotny

Abstract

This paper empirically analysis the price jump behavior of heavily traded US stocks during the recent financial crisis. Namely, I test the hypothesis that the recent financial turmoil caused no change in the price jump behavior. To accomplish this, I employ data on realized trades for 16 stocks and one ETF from the NYSE database. These data are at a 1-minute frequency and span the period from January 2008 to the end of July 2009, where the recent financial crisis is generally understood to start with the plunge of Lehman Brothers shares on September 9, 2008. I employ five model-independent and three model-dependent price jump indicators to robustly assess the price jump behavior. The results confirm an increase in overall volatility during the recent financial crisis; however, the results cannot reject the hypothesis that there was no change in price jump behavior in the data during the financial crisis. This implies that the uncertainty during the crisis was scaled up but the structure of the uncertainty seems to be the same.

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Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp416.

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Date of creation: Sep 2010
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Handle: RePEc:cer:papers:wp416

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Keywords: financial markets; price jumps; extreme price movements; financial crisis;

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References

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  1. Merton, Robert C., 1976. "Option pricing when underlying stock returns are discontinuous," Journal of Financial Economics, Elsevier, Elsevier, vol. 3(1-2), pages 125-144.
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Cited by:
  1. Jan Hanousek & Evzen Kocenda & Jan Novotny, 2011. "The Identification of Price Jumps," CERGE-EI Working Papers, The Center for Economic Research and Graduate Education - Economic Institute, Prague wp434, The Center for Economic Research and Graduate Education - Economic Institute, Prague.

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