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Brownian motion vs. pure-jump processes for individual stocks

Author

Listed:
  • Benoît Sévi

    (Aix-Marseille School of Economics (DEFI))

  • César Baena

    (BEM Bordeaux Management School)

Abstract

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.

Suggested Citation

  • Benoît Sévi & César Baena, 2011. "Brownian motion vs. pure-jump processes for individual stocks," Economics Bulletin, AccessEcon, vol. 31(4), pages 3138-3152.
    • Handle: RePEc:ebl:ecbull:eb-11-00669
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    References listed on IDEAS

    as
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    Cited by:

    1. Jan-Christian Gerlach & Jerome Kreuser & Didier Sornette, 2020. "Awareness of crash risk improves Kelly strategies in simulated financial time series," Papers 2004.09368, arXiv.org.

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    More about this item

    Keywords

    asset prices; Brownian motion; jumps; activity signature functions;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G1 - Financial Economics - - General Financial Markets

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