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The Identification of Price Jumps

  • Jan Hanousek
  • Evzen Kocenda
  • Jan Novotny

We performed an extensive simulation study to compare the relative performance of many price-jump indicators with respect to false positive and false negative probabilities. We simulated twenty different time series specifications with different intraday noise volatility patterns and price-jump specifications. The double McNemar (1947) non-parametric test has been applied on constructed artificial time series to compare fourteen different price-jump indicators that are widely used in the literature. The results suggest large differences in terms of performance among the indicators, but we were able to identify the best-performing indicators. In the case of false positive probability, the best-performing price-jump indicator is based on thresholding with respect to centiles. In the case of false negative probability, the best indicator is based on bipower variation.

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Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp434.

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Date of creation: Mar 2011
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Handle: RePEc:cer:papers:wp434
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