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Empirical evidence of jump behaviour in the Colombian intraday bond market

Author

Listed:
  • Castro, C
  • Romero, M
  • Vélez, S

Abstract

Simulations and empirical studies suggest that incorporating a discontinuous jump process in asset pricing models improve volatility forecasting, pricing of instruments, and hedging positions in a portfolio. In this paper we analyze high frequency market data of Colombian sovereign bonds in order to study the presence or absence of discontinuities in the price generating process. We find that Colombian sovereign debt experiments jumps across all maturities but with different frequencies, in particular, we do not find that long term bonds jump less frequently than short term bonds. Furthermore, bonds with closer maturities cojump in greater magnitude than those with a greater distance between them. Finally, we find significant day-of-the-week effects, as well as an important increase in the jump frequency due to surprises in economic information related to US monetary policy and no effect due to direct monetary policy announcements in Colombia or the US.

Suggested Citation

  • Castro, C & Romero, M & Vélez, S, 2020. "Empirical evidence of jump behaviour in the Colombian intraday bond market," Documentos de Trabajo 18098, Universidad del Rosario.
    • Handle: RePEc:col:000092:018098
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    More about this item

    Keywords

    Jumps; Realized Variance; High Frequency; Preferred habitattheory; Monetary Policy Announcements;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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