Risk, Jumps, and Diversification

By Tim Bollerslev, T. Law, George Tauchen. 2008

264 citations recorded by the source corpus.

We test for price discontinuities, or jumps, in a panel of high-frequency intraday stock returns and an equiweighted index constructed from the same stocks. Using a new test for common jumps that explicitly utilizes the cross-covariance structure in the returns to identify non-diversifiable jumps, we find strong evidence for many modest-sized, yet highly significant, cojumps that simply pass through standard jump detection statistics when applied on a stock-by-stock basis. Our results are further corroborated by a striking within-day pattern in the significant cojumps, with a sharp peak at the time of regularly scheduled macroeconomic news announcements.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/1263e1753396bff5712e73d984c04a6fe8f9782b

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Citations in the corpus

Econometrics of co-jumps in high-frequency data with noise (2015, background): “In this context, let us mention the important contributions by Barndorff-Nielsen and Shephard (2006), Jiang and Oomen (2008), Bollerslev et al. (2008), Mancini (2009), Jacod (2008), Fan and Wang (2007), Podolskji and Ziggel (2010) and Curci and Corsi (2012).”
Detecting Jumps from Levy Jump Diffusion Processes (2010, background): “This evidence also offers a resolution to the puzzle noted in Bollerslev, Law, and Tauchen (2008), that is, why jumps detected in the index are uncorrelated with jumps detected in its component stocks since the index can only jump when there is at least one jump in its component stocks.”
Testing for Common Arrivals of Jumps for Discretely Observed Multidimensional Processes (2009, background): “Recently, [6] analyzed the relationship between the jumps in individual stocks and a portfolio of these stocks and similarly concluded for the need of formal tests about the possible common arrival of jumps in individual series.”
Outlyingness weighted covariation (2011, unknown): “Because it uses univariate truncation rules, it has also less robustness to modest-sized cojumps which are not detectible as univariate jumps (Bollerslev et al., 2008).”
Roughing up Beta: Continuous vs. Discontinuous Betas, and the Cross-Section of Expected Stock Returns (2014, unknown): “Coarser sampling frequencies are often used as a simple way to guard against any biases induced by these complications; see, e.g, the discussion in Sheppard (2006) and Bollerslev, Law, and Tauchen (2008), along with the survey by Barndorff-Nielsen and Shephard (2007).”
IDENTIFYING THE BROWNIAN COVARIATION FROM THE CO-JUMPS GIVEN DISCRETE OBSERVATIONS (2012, background): “The recent empirical interest in co-jumps in financial econometrics ([9]) is motivated by the problem of a correct assets price model selection.”
Systemic Co-Jumps (2017, background): “Bollerslev et al. (2008b) highlight the empirical potential of the variance risk premium by showing that V RPt carries significant forecasting power for future returns; see also Carr and Wu (2009) and Bollerslev and Todorov (2011).”
Jumps and Betas: A New Framework for Disentangling and Estimating Systematic Risks (2010, unknown): “While the magnitude and the impact of the ”noise” obviously differs across stocks and across time, the analysis in Bollerslev et al. (2008) suggests that a conservative sampling frequency of 22.5 minutes strikes such a balance and effectively mitigates the impact of the ”noise” for all of the forty…”