Analyzing the Spectrum of Asset Returns: Jump and Volatility Components in High Frequency Data
Princeton University - Department of Economics; National Bureau of Economic Research (NBER)
Université Paris VI Pierre et Marie Curie
January 29, 2010
AFA 2011 Denver Meetings Paper
This paper describes a simple yet powerful methodology to decompose asset returns sampled at high frequency into their base components (continuous, small jumps, large jumps), determine the relative magnitude of the components, and analyze the finer characteristics of these components such as the degree of activity of the jumps. We extend the existing theory to incorporate to effect of market microstructure noise on the test statistics, apply the methodology to high frequency individual stock returns, transactions and quotes, stock index returns and compare the qualitative features of the estimated process for these different data and discuss the economic implications of the results.
Keywords: Continuous-time models, semimartingales, jumps, volatility, spectrum, high frequency financial returns, market microstructure noise
JEL Classification: G11working papers series
Date posted: March 3, 2010
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