Stock price jumps: news and volume play a minor role
In order to understand the origin of stock price jumps, we cross-correlate high-frequency time series of stock returns with different news feeds. We find that neither idiosyncratic news nor market wide news can explain the frequency and amplitude of price jumps. We find that the volatility patterns around jumps and around news are quite different: jumps are followed by increased volatility, whereas news tend on average to be followed by lower volatility levels. The shape of the volatility relaxation is also markedly different in the two cases. Finally, we provide direct evidence that large transaction volumes are_not_ responsible for large price jumps. We conjecture that most price jumps are induced by order flow fluctuations close to the point of vanishing liquidity.
References listed on IDEAS
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- Ray C. Fair, 2000.
"Events that Shook the Market,"
Yale School of Management Working Papers
ysm149, Yale School of Management.
- Olivier Guedj & Jean-Philippe Bouchaud, 2005. "Experts' Earning Forecasts: Bias, Herding And Gossamer Information," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 8(07), pages 933-946.
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