IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Price Jumps on European Stock Markets

  • Jan Hanousek

    ()

  • Evžen Kočenda

    ()

  • Jan Novotný

    ()

We analyze the dynamics of price jumps and the impact of the European debt crisis using the high-frequency data reported by selected stock exchanges on the European continent during the period January 2008 to June 2012. We employ two methods to identify price jumps: Method 1 minimizes the probability of false jump detection (the Type-II Error-Optimal price jump indicator) and Method 2 maximizes the probability of successful jump detection (the Type-I Error-Optimal price jump indicator). We show that individual stock markets exhibited differences in price jump intensity before and during the crisis. We also show that in general the variance of price jump intensity could not be distinguished as different in the pre-crisis period from that during the crisis. Our results indicate that, contrary to common belief, the intensity of price jumps does not uniformly increase during a period of financial distress. However, there do exist differences in price jump dynamics across stock markets and investors have to model emerging and mature markets differently to properly reflect their individual dynamics.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp1059.pdf
Download Restriction: no

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp1059.

as
in new window

Length: pages
Date of creation: 01 Sep 2013
Date of revision:
Handle: RePEc:wdi:papers:2013-1059
Contact details of provider: Postal: 724 E. University Ave, Wyly Hall 1st Flr, Ann Arbor MI 48109
Phone: 734 763-5020
Fax: 734 763-5850
Web page: http://www.wdi.umich.edu
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Suzanne S. Lee, 2012. "Jumps and Information Flow in Financial Markets," Review of Financial Studies, Society for Financial Studies, vol. 25(2), pages 439-479.
  2. Jan Hanousek & Evžen Kočenda, 2011. "Foreign News and Spillovers in Emerging European Stock Markets," Review of International Economics, Wiley Blackwell, vol. 19(1), pages 170-188, 02.
  3. Sean Becketti & Dan J. Roberts, 1990. "Will increased regulation of stock index futures reduce stock market volatility?," Economic Review, Federal Reserve Bank of Kansas City, issue Nov, pages 33-46.
  4. J. -P. Bouchaud & J. Kockelkoren & M. Potters, 2004. "Random walks, liquidity molasses and critical response in financial markets," Papers cond-mat/0406224, arXiv.org, revised Jun 2004.
  5. Kennedy, Duane B. & Sivakumar, Ranjini & Vetzal, Kenneth R., 2006. "The implications of IPO underpricing for the firm and insiders: Tests of asymmetric information theories," Journal of Empirical Finance, Elsevier, vol. 13(1), pages 49-78, January.
  6. Torben G. Andersen & Dobrislav Dobrev & Ernst Schaumburg, 2010. "Jump-robust volatility estimation using nearest neighbor truncation," Staff Reports 465, Federal Reserve Bank of New York.
  7. Armand Joulin & Augustin Lefevre & Daniel Grunberg & Jean-Philippe Bouchaud, 2008. "Stock price jumps: news and volume play a minor role," Papers 0803.1769, arXiv.org.
  8. Giot, Pierre & Laurent, Sébastien & Petitjean, Mikael, 2010. "Trading activity, realized volatility and jumps," Journal of Empirical Finance, Elsevier, vol. 17(1), pages 168-175, January.
  9. Merton, Robert C., 1975. "Option pricing when underlying stock returns are discontinuous," Working papers 787-75., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  10. Massimiliano Caporin & Eduardo Rossi & Paolo Santucci de Magistris, 2011. "Conditional jumps in volatility and their economic determinants," "Marco Fanno" Working Papers 0138, Dipartimento di Scienze Economiche "Marco Fanno".
  11. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.
  12. Hanousek, Jan & Kocenda, Evzen & Kutan, Ali M., 2009. "The reaction of asset prices to macroeconomic announcements in new EU markets: Evidence from intraday data," Journal of Financial Stability, Elsevier, vol. 5(2), pages 199-219, June.
  13. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-43.
  14. Jarrow, Robert A & Rosenfeld, Eric R, 1984. "Jump Risks and the Intertemporal Capital Asset Pricing Model," The Journal of Business, University of Chicago Press, vol. 57(3), pages 337-51, July.
  15. Liu, Jun & Longstaff, Francis & Pan, Jun, 2001. "Dynamic Asset Allocation with Event Risk," University of California at Los Angeles, Anderson Graduate School of Management qt9fm6t5nb, Anderson Graduate School of Management, UCLA.
  16. Peter Carr & Liuren Wu, 2010. "Stock Options and Credit Default Swaps: A Joint Framework for Valuation and Estimation," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 8(4), pages 409-449, Fall.
  17. Mark Broadie & Ashish Jain, 2008. "The Effect Of Jumps And Discrete Sampling On Volatility And Variance Swaps," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 11(08), pages 761-797.
  18. Jan Novotný & Jan Hanousek & Evžen Kočenda, 2013. "Price Jump Indicators: Stock Market Empirics During the Crisis," William Davidson Institute Working Papers Series wp1050, William Davidson Institute at the University of Michigan.
  19. Philip R. Lane, 2012. "The European Sovereign Debt Crisis," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 49-68, Summer.
  20. Jérôme Lahaye & Sébastien Laurent & Christopher J. Neely, 2007. "Jumps, cojumps and macro announcements," Working Papers 2007-032, Federal Reserve Bank of St. Louis.
  21. Suzanne S. Lee & Per A. Mykland, 2008. "Jumps in Financial Markets: A New Nonparametric Test and Jump Dynamics," Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2535-2563, November.
  22. Cornell, Bradford & Sirri, Erik R, 1992. " The Reaction of Investors and Stock Prices to Insider Trading," Journal of Finance, American Finance Association, vol. 47(3), pages 1031-59, July.
  23. Jarque, Carlos M. & Bera, Anil K., 1980. "Efficient tests for normality, homoscedasticity and serial independence of regression residuals," Economics Letters, Elsevier, vol. 6(3), pages 255-259.
  24. Yacine Aït-Sahalia & Julio Cacho-Diaz & Roger J.A. Laeven, 2010. "Modeling Financial Contagion Using Mutually Exciting Jump Processes," NBER Working Papers 15850, National Bureau of Economic Research, Inc.
  25. Arshanapalli, Bala & Fabozzi, Frank J. & Nelson, William, 2013. "The role of jump dynamics in the risk–return relationship," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 212-218.
  26. Bates, David S, 1996. "Jumps and Stochastic Volatility: Exchange Rate Processes Implicit in Deutsche Mark Options," Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 69-107.
  27. Eric Ghysels & Arthur Sinko & Rossen Valkanov, 2007. "MIDAS Regressions: Further Results and New Directions," Econometric Reviews, Taylor & Francis Journals, vol. 26(1), pages 53-90.
  28. Darrell Duffie & Jun Pan & Kenneth Singleton, 1999. "Transform Analysis and Asset Pricing for Affine Jump-Diffusions," NBER Working Papers 7105, National Bureau of Economic Research, Inc.
  29. Harry Zheng & Yukun Shen, 2008. "Jump liquidity risk and its impact on CVaR," Journal of Risk Finance, Emerald Group Publishing, vol. 9(5), pages 477-492, November.
  30. Fernanda Nechio, 2010. "The Greek crisis: Argentina revisited?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov1.
  31. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wdi:papers:2013-1059. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Laurie Gendron)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.