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Jumps in Financial Markets: A New Nonparametric Test and Jump Dynamics

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  • Suzanne S. Lee
  • Per A. Mykland

Abstract

This article introduces a new nonparametric test to detect jump arrival times and realized jump sizes in asset prices up to the intra-day level. We demonstrate that the likelihood of misclassification of jumps becomes negligible when we use high-frequency returns. Using our test, we examine jump dynamics and their distributions in the U.S. equity markets. The results show that individual stock jumps are associated with prescheduled earnings announcements and other company-specific news events. Additionally, S&P 500 Index jumps are associated with general market news announcements. This suggests different pricing models for individual equity options versus index options. The Author 2007. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org., Oxford University Press.

Suggested Citation

  • Suzanne S. Lee & Per A. Mykland, 2008. "Jumps in Financial Markets: A New Nonparametric Test and Jump Dynamics," The Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2535-2563, November.
    • Handle: RePEc:oup:rfinst:v:21:y:2008:i:6:p:2535-2563
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    File URL: http://hdl.handle.net/10.1093/rfs/hhm056
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