The Identification of Price Jumps
AbstractWe performed an extensive simulation study to compare the relative performance of many price-jump indicators with respect to false positive and false negative probabilities. We simulated twenty different time series specifications with different intraday noise volatility patterns and price-jump specifications. The double McNemar (1947) non-parametric test has been applied on constructed artificial time series to compare fourteen different price-jump indicators that are widely used in the literature. The results suggest large differences in terms of performance among the indicators, but we were able to identify the best-performing indicators. In the case of false positive probability, the best-performing price-jump indicator is based on thresholding with respect to centiles. In the case of false negative probability, the best indicator is based on bipower variation.
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Bibliographic InfoPaper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp434.
Date of creation: Mar 2011
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price jumps; price-jump indicators; non-parametric testing; Monte Carlo simulations; financial econometrics;
Find related papers by JEL classification:
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
- F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-26 (All new papers)
- NEP-ECM-2011-03-26 (Econometrics)
- NEP-MST-2011-03-26 (Market Microstructure)
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