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Jumps Versus Bursts: Dissection and Origins via a New Endogenous Thresholding Approach

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  • Zhao, X.
  • Hong, S. Y.
  • Linton, O. B.

Abstract

We study the different origins of two closely related extreme financial risk factors: volatility bursts and price jumps. We propose a new method to separate these quantities from ultra-high-frequency data via a novel endogenous thresholding approach in the presence of market microstructure noise and staleness. Our daily jump statistic proxies volatility bursts when intraday jumps are accurately controlled by our local jump test (which proves to be highly powerful with extremely low misclassification rates due to its timely detections). We find that news is more related to volatility bursts; while high-frequency trading variables, especially volume and bid/ask spread, are prominent signals for price jumps.

Suggested Citation

  • Zhao, X. & Hong, S. Y. & Linton, O. B., 2024. "Jumps Versus Bursts: Dissection and Origins via a New Endogenous Thresholding Approach," Janeway Institute Working Papers 2423, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camjip:2423
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    More about this item

    Keywords

    Price Jumps; Volatility Bursts; Market Microstructure Noise; Endogenous Sampling; High-Frequency Trading; News Sentiment;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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