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Do co-jumps impact correlations in currency markets?

Listed author(s):
  • Jozef Barunik
  • Lukas Vacha

We quantify how co-jumps impact correlations in currency markets. To disentangle the continuous part of quadratic covariation from co-jumps, and study the influence of co-jumps on correlations, we propose a new wavelet-based estimator. The proposed estimation framework is able to localize the co-jumps very precisely through wavelet coefficients and identify statistically significant co-jumps. Empirical findings reveal the different behaviors of co-jumps during Asian, European and U.S. trading sessions. Importantly, we document that co-jumps significantly influence correlation in currency markets.

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File URL: http://arxiv.org/pdf/1602.05489
File Function: Latest version
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Paper provided by arXiv.org in its series Papers with number 1602.05489.

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Date of creation: Feb 2016
Date of revision: Oct 2017
Handle: RePEc:arx:papers:1602.05489
Contact details of provider: Web page: http://arxiv.org/

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