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A Comprehensive Comparison of Alternative Tests for Jumps in Asset Prices

Author

Listed:
  • Marina Theodosiou

    (Central Bank of Cyprus)

  • Filip Zikes

    (Imperial College London)

Abstract

This paper presents a comprehensive comparison of the existing tests for the presence of jumps in prices of financial assets. The relative performance of the tests is examined in a Monte Carlo simulation, covering scenarios of both finite and infinite activity jumps, stochastic volatility models with continuous and discontinuous volatility sample paths, microstructure noise, infrequent trading and deterministic diurnal volatility. The simulation results reveal important differences in terms of size and power across the different data generating processes and sensitivity to the presence of zero returns and microstructure frictions in the data. An empirical application to assets from different classes complements the analysis.

Suggested Citation

  • Marina Theodosiou & Filip Zikes, 2011. "A Comprehensive Comparison of Alternative Tests for Jumps in Asset Prices," Working Papers 2011-2, Central Bank of Cyprus.
    • Handle: RePEc:cyb:wpaper:2011-2
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    File URL: https://www.centralbank.cy/images/media/pdf/NPWPE_no2_072011.pdf
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    More about this item

    Keywords

    Quadratic variation; jumps; stochastic volatility; realized measures; high-frequency data;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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