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Testing for jumps in noisy high frequency data

Author

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  • Aït-Sahalia, Yacine
  • Jacod, Jean
  • Li, Jia

Abstract

This paper proposes a robustification of the test statistic of Aït-Sahalia and Jacod (2009b) for the presence of market microstructure noise in high frequency data, based on the pre-averaging method of Jacod et al. (2010). We show that the robustified statistic restores the test’s discriminating power between jumps and no jumps despite the presence of market microstructure noise in the data.

Suggested Citation

  • Aït-Sahalia, Yacine & Jacod, Jean & Li, Jia, 2012. "Testing for jumps in noisy high frequency data," Journal of Econometrics, Elsevier, vol. 168(2), pages 207-222.
  • Handle: RePEc:eee:econom:v:168:y:2012:i:2:p:207-222
    DOI: 10.1016/j.jeconom.2011.12.004
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    References listed on IDEAS

    as
    1. Jacod, Jean & Li, Yingying & Mykland, Per A. & Podolskij, Mark & Vetter, Mathias, 2009. "Microstructure noise in the continuous case: The pre-averaging approach," Stochastic Processes and their Applications, Elsevier, vol. 119(7), pages 2249-2276, July.
    2. Peter Carr & Liuren Wu, 2003. "What Type of Process Underlies Options? A Simple Robust Test," Journal of Finance, American Finance Association, vol. 58(6), pages 2581-2610, December.
    3. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold, 2007. "Roughing It Up: Including Jump Components in the Measurement, Modeling, and Forecasting of Return Volatility," The Review of Economics and Statistics, MIT Press, vol. 89(4), pages 701-720, November.
    4. Yingying Li & Per A. Mykland, 2007. "Are volatility estimators robust with respect to modeling assumptions?," Papers 0709.0440, arXiv.org.
    5. Lee, Suzanne S. & Hannig, Jan, 2010. "Detecting jumps from Lévy jump diffusion processes," Journal of Financial Economics, Elsevier, vol. 96(2), pages 271-290, May.
    6. Zhang, Lan & Mykland, Per A. & Ait-Sahalia, Yacine, 2005. "A Tale of Two Time Scales: Determining Integrated Volatility With Noisy High-Frequency Data," Journal of the American Statistical Association, American Statistical Association, vol. 100, pages 1394-1411, December.
    7. Ole E. Barndorff-Nielsen & Peter Reinhard Hansen & Asger Lunde & Neil Shephard, 2008. "Designing Realized Kernels to Measure the ex post Variation of Equity Prices in the Presence of Noise," Econometrica, Econometric Society, vol. 76(6), pages 1481-1536, November.
    8. Xin Huang & George Tauchen, 2005. "The Relative Contribution of Jumps to Total Price Variance," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 3(4), pages 456-499.
    9. Yacine Aït-Sahalia, 2005. "How Often to Sample a Continuous-Time Process in the Presence of Market Microstructure Noise," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 351-416.
    10. Suzanne S. Lee & Per A. Mykland, 2008. "Jumps in Financial Markets: A New Nonparametric Test and Jump Dynamics," Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2535-2563, November.
    11. Jiang, George J. & Oomen, Roel C.A., 2008. "Testing for jumps when asset prices are observed with noise-a "swap variance" approach," Journal of Econometrics, Elsevier, vol. 144(2), pages 352-370, June.
    12. Xiu, Dacheng, 2010. "Quasi-maximum likelihood estimation of volatility with high frequency data," Journal of Econometrics, Elsevier, vol. 159(1), pages 235-250, November.
    13. Ai[diaeresis]t-Sahalia, Yacine & Kimmel, Robert, 2007. "Maximum likelihood estimation of stochastic volatility models," Journal of Financial Economics, Elsevier, vol. 83(2), pages 413-452, February.
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    Cited by:

    1. Christensen, K. & Podolskij, M. & Thamrongrat, N. & Veliyev, B., 2017. "Inference from high-frequency data: A subsampling approach," Journal of Econometrics, Elsevier, vol. 197(2), pages 245-272.
    2. repec:eee:econom:v:202:y:2018:i:1:p:18-44 is not listed on IDEAS
    3. El Ouadghiri, Imane & Uctum, Remzi, 2016. "Jumps in equilibrium prices and asymmetric news in foreign exchange markets," Economic Modelling, Elsevier, vol. 54(C), pages 218-234.
    4. Erdemlioglu, Deniz & Laurent, Sébastien & Neely, Christopher J., 2015. "Which continuous-time model is most appropriate for exchange rates?," Journal of Banking & Finance, Elsevier, vol. 61(S2), pages 256-268.
    5. repec:eee:econom:v:203:y:2018:i:2:p:256-266 is not listed on IDEAS
    6. repec:kap:apfinm:v:24:y:2017:i:1:d:10.1007_s10690-017-9223-4 is not listed on IDEAS
    7. Prosper Dovonon & Sílvia Gonçalves & Ulrich Hounyo & Nour Meddahi, 2016. "Bootstrapping high-frequency jump tests," CIRANO Working Papers 2016s-24, CIRANO.
    8. Bibinger, Markus & Winkelmann, Lars, 2015. "Econometrics of co-jumps in high-frequency data with noise," Journal of Econometrics, Elsevier, vol. 184(2), pages 361-378.
    9. Clements, A.E. & Hurn, A.S. & Volkov, V.V., 2016. "Common trends in global volatility," Journal of International Money and Finance, Elsevier, vol. 67(C), pages 194-214.
    10. Markus Bibinger & Lars Winkelmann, 2014. "Common price and volatility jumps in noisy high-frequency data," SFB 649 Discussion Papers SFB649DP2014-037, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    11. Aguilar, Mike & Hill, Jonathan B., 2015. "Robust score and portmanteau tests of volatility spillover," Journal of Econometrics, Elsevier, vol. 184(1), pages 37-61.
    12. Vortelinos, Dimitrios I. & Lakshmi, Geeta, 2015. "Market risk of BRIC Eurobonds in the financial crisis period," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 295-310.
    13. repec:eee:phsmap:v:483:y:2017:i:c:p:83-93 is not listed on IDEAS
    14. Aït-Sahalia, Yacine & Xiu, Dacheng, 2016. "Increased correlation among asset classes: Are volatility or jumps to blame, or both?," Journal of Econometrics, Elsevier, vol. 194(2), pages 205-219.
    15. Gong, Xiaoli & Zhuang, Xintian, 2017. "Measuring financial risk and portfolio reversion with time changed tempered stable Lévy processes," The North American Journal of Economics and Finance, Elsevier, vol. 40(C), pages 148-159.
    16. repec:eee:econom:v:201:y:2017:i:1:p:19-42 is not listed on IDEAS
    17. Xin Zhang & Donggyu Kim & Yazhen Wang, 2016. "Jump Variation Estimation with Noisy High Frequency Financial Data via Wavelets," Econometrics, MDPI, Open Access Journal, vol. 4(3), pages 1-26, August.
    18. Istvan Barra & Siem Jan Koopman & Agnieszka Borowska, 2016. "Bayesian Dynamic Modeling of High-Frequency Integer Price Changes," Tinbergen Institute Discussion Papers 16-028/III, Tinbergen Institute, revised 16 Feb 2018.
    19. repec:oup:jfinec:v:16:y:2018:i:1:p:118-128. is not listed on IDEAS

    More about this item

    Keywords

    Semimartingale; Testing for jumps; High frequency data; Market microstructure noise; Pre-averaging;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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