Abstract

http://ssrn.com/abstract=1848774
 
 

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Fact or Friction: Jumps at Ultra High Frequency


Kim Christensen


University of Aarhus - CREATES

Roel C. A. Oomen


Deutsche Bank AG; University of Amsterdam

Mark Podolskij


University of Aarhus - School of Economics and Management

January 31, 2014

Journal of Financial Economics (JFE), Forthcoming

Abstract:     
This paper shows that jumps in financial asset prices are often erroneously identified and are, in fact, rare events accounting for a very small proportion of the total price variation. We apply new econometric techniques to a comprehensive set of ultra high-frequency equity and foreign exchange tick data recorded at milli-second precision, allowing us to examine the price evolution at the individual order level. We show that in both theory and practice traditional measures of jump variation based on lower-frequency data tend to spuriously assign a burst of volatility to the jump component. As a result, the true price variation coming from jumps is overstated. Our estimates based on tick data suggest that the jump variation is an order of magnitude smaller than typical estimates found in the existing literature.

The appendices for this paper are available at the following URL: http://ssrn.com/abstract=2177370

Number of Pages in PDF File: 44

Keywords: jump variation, high-frequency data, market microstructure noise, pre-averaging, realised variation, outliers

JEL Classification: C10, C80

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Date posted: May 22, 2011 ; Last revised: February 3, 2014

Suggested Citation

Christensen, Kim and Oomen, Roel C. A. and Podolskij, Mark, Fact or Friction: Jumps at Ultra High Frequency (January 31, 2014). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: http://ssrn.com/abstract=1848774 or http://dx.doi.org/10.2139/ssrn.1848774

Contact Information

Kim Christensen (Contact Author)
University of Aarhus - CREATES ( email )
Department of Economics and Business
Bartholins Allé 10
Aarhus C, 8000
Denmark
Roel C.A. Oomen
Deutsche Bank AG ( email )
1 Great Winchester Street
London, EC2N 2DB
United Kingdom
University of Amsterdam ( email )
Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
Mark Podolskij
University of Aarhus - School of Economics and Management ( email )
Building 350
DK-8000 Aarhus C
Denmark
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