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Trading activity, realized volatility and jumps

  • Giot, Pierre
  • Laurent, Sébastien
  • Petitjean, Mikael

This paper takes a new look at the relation between volume and realized volatility. In contrast to prior studies, we decompose realized volatility into two major components: a continuously varying component and a discontinuous jump component. Our results confirm that the number of trades is the dominant factor shaping the volume-volatility relation, whatever the volatility component considered. However, we also show that the decomposition of realized volatility bears on the volume-volatility relation. Trade variables are positively related to the continuous component only. The well-documented positive volume-volatility relation does not hold for jumps.

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Article provided by Elsevier in its journal Journal of Empirical Finance.

Volume (Year): 17 (2010)
Issue (Month): 1 (January)
Pages: 168-175

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Handle: RePEc:eee:empfin:v:17:y:2010:i:1:p:168-175
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  1. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2007. "Real-Time Price Discovery in Global Stock, Bond and Foreign Exchange Markets," CREATES Research Papers 2007-20, School of Economics and Management, University of Aarhus.
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  15. Jérôme Lahaye & Sébastien Laurent & Christopher J. Neely, 2007. "Jumps, cojumps and macro announcements," Working Papers 2007-032, Federal Reserve Bank of St. Louis.
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