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Working Paper
Sluggish news reactions: A combinatorial approach for synchronizing stock jumps
Stock prices often react sluggishly to news, producing gradual jumps and jump delays. Econometricians typically treat these sluggish reactions as microstructure effects and settle for a coarse sampling grid to guard against them. Synchronizing mistimed stock returns on a fine sampling grid allows us to better approximate the true common jumps in related stock prices.
Working Paper
Which continuous-time model is most appropriate for exchange rates?
This paper attempts to realistically model the underlying exchange rate data generating process. We ask what types of diffusion or jump features are most appropriate. The most plausible model for 1-minute data features Brownian motion and Poisson jumps but not infinite activity jumps. Modeling periodic volatility is necessary to accurately identify the frequency of jump occurrences and their locations. We propose a two-stage method to capture the effects of these periodic volatility patterns. Simulations show that microstructure noise does not significantly impair the statistical tests for ...
Working Paper
Central bank intervention and exchange rate volatility, its continuous and jump components
We analyze the relationship between interventions and volatility at daily and intra-daily frequencies for the two major exchange rate markets. Using recent econometric methods to estimate realized volatility, we employ bipower variation to decompose this volatility into a continuously varying and jump component. Analysis of the timing and direction of jumps and interventions imply that coordinated interventions tend to cause few, but large jumps. Most coordinated operations explain, statistically, an increase in the persistent (continuous) part of exchange rate volatility. This correlation is ...
Working Paper
Econometric modeling of exchange rate volatility and jumps
This chapter reviews the rapid advances in foreign exchange volatility modeling made in the last three decades. Academic researchers have sought to fit the three major characteristics of foreign exchange volatility: intraday periodicity, autocorrelation and discontinuities in prices. Early research modeled the autocorrelation in daily and weekly squared foreign exchange returns with ARCH/GARCH models. Increased computing power and availability of high-frequency data allowed later researchers to improve volatility and jumps estimates. Researchers also found it useful to incorporate information ...
Working Paper
Jumps, cojumps and macro announcements
We analyze and assess the impact of macroeconomic announcements on the discontinuities in many assets: stock index futures, bond futures, exchange rates, and gold. We use bi-power variation and the recently proposed non-parametric techniques of Lee and Mykland (2006) to extract jumps. Beyond characterizing the jump and cojump dynamics of many assets, we analyze how news arrival causes jumps and cojumps and estimate limited-dependent-variable models to quantify the impact of surprises. We confirm previous findings that some surprises create jumps. However, many announcements do not create ...