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Brownian motion vs. pure-jump processes for individual stocks

  • Benoît Sévi

    ()

    (Aix-Marseille School of Economics (DEFI))

  • César Baena

    ()

    (BEM Bordeaux Management School)

Using recent activity signature function methodology developed in Todorov and Tauchen (2010), we provide empirical evidence that individual stocks from the New York Stock Exchange are adequately represented by a Brownian motion plus medium to large (rare) jumps thus invalidating the pure-jump process hypothesis proposed in numerous contributions. This result improves our understanding of the fine structure of asset prices and has implications for derivatives pricing.

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File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I4-P284.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 4 ()
Pages: 3138-3152

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Handle: RePEc:ebl:ecbull:eb-11-00669
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