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Sluggish news reactions: A combinatorial approach for synchronizing stock jumps


Abstract: Stock prices often react sluggishly to news: latent efficient prices may jump immediately, while observed transaction prices adjust with a delay or piecewise, producing mistimed jumps. Econometricians typically treat these sluggish reactions as microstructure effects and settle for a coarse sampling grid to guard against them. We introduce a combinatorial method that synchronizes mistimed stock jump returns on a fine grid, allowing us to better approximate common jumps in the efficient prices of related stocks. In an application to Dow 30 data, the synchronized jumps produce better jump covariance estimates, realized jump betas with better forecasting power, and superior trading-rule performance.

JEL Classification: C02; C58; G11; G14;

https://doi.org/10.20955/wp.2024.006

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Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2026-07-06

Number: 2024-006

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