The role of intra-day volatility pattern in jump detection: empirical evidence on how financial markets respond to macroeconomic news announcements

This paper examines the effect of adjusting for the intra-day volatility pattern on jump detection. Using tests that identify the intra-day timing of jumps, we show that before the adjustment, jumps in the financial market have high probability of occurring concurrently with pre-scheduled economy-wide news announcements. We demonstrate that adjustment for the U-shaped volatility pattern prior to jump detection effectively removes most of the association between jumps and macroeconomic news announcements. We find empirical evidence that only news that comes with large surprise can cause jumps in the market index after the volatility adjustment, while the effect of other types of news is largely absorbed through the continuous volatility channel. The FOMC meeting announcement is shown to have the highest association with jumps in the market both before and after the adjustment.