Price Jumps on European Stock Markets
AbstractWe analyze the dynamics of price jumps and the impact of the European debt crisis using the high-frequency data reported by selected stock exchanges on the European continent during the period January 2008 to June 2012. We employ two methods to identify price jumps: Method 1 minimizes the probability of false jump detection (the Type-II Error-Optimal price jump indicator) and Method 2 maximizes the probability of successful jump detection (the Type-I Error-Optimal price jump indicator). We show that individual stock markets exhibited differences in price jump intensity before and during the crisis. We also show that in general the variance of price jump intensity could not be distinguished as different in the pre-crisis period from that during the crisis. Our results indicate that, contrary to common belief, the intensity of price jumps does not uniformly increase during a period of financial distress. However, there do exist differences in price jump dynamics across stock markets and investors have to model emerging and mature markets differently to properly reflect their individual dynamics.
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Bibliographic InfoPaper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp1059.
Date of creation: 15 Sep 2013
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European stock markets; price jump indicators; non-parametric testing; clustering analysis; financial econometrics; emerging markets.;
Other versions of this item:
- 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-2014-01-24 (All new papers)
- NEP-EEC-2014-01-24 (European Economics)
- NEP-FMK-2014-01-24 (Financial Markets)
- NEP-IAS-2014-01-24 (Insurance Economics)
- NEP-MST-2014-01-24 (Market Microstructure)
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