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Cojumping: Evidence from the US Treasury Bond and Futures Markets

The basis between spot and future prices will be affected by jump behavior in each asset price, challenging intraday hedging strategies. Using a formal cojumping test this paper considers the cojumping behavior of spot and futures prices in high frequency US Treasury data. Cojumping occurs most frequently at shorter maturities and higher sampling frequencies. We find that the presence of an anticipated macroeconomic news announcement, and particularly non-farm payrolls, increases the probability of observing cojumps. However, a negative surprise in non-farm payrolls, also increases the probability of the cojumping tests being unable to determine whether jumps in spots and futures occur contemporaneously, or alternatively that one market follows the other. On these occasions the market does not clearly signal its short term pricing behavior.

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Paper provided by National Centre for Econometric Research in its series NCER Working Paper Series with number 56.

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Length: 22 pages
Date of creation: 20 Jul 2010
Date of revision: 20 Jul 2010
Handle: RePEc:qut:auncer:2010_03
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  23. Jiang, George J. & Lo, Ingrid & Verdelhan, Adrien, 2011. "Information Shocks, Liquidity Shocks, Jumps, and Price Discovery: Evidence from the U.S. Treasury Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(02), pages 527-551, April.
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