Detecting Jumps amidst Prevalent Zero Returns: Evidence from the U.S. Treasury Securities

62 Pages Posted: 12 Nov 2018 Last revised: 31 Aug 2021

See all articles by SeungOh Han

SeungOh Han

Sejong University; State University of New York (SUNY) - Buffalo; Wenzhou-Kean University

Sahn-Wook Huh

State University of New York (SUNY) - Department of Finance

Jeayoung Park

State University of New York (SUNY) - Buffalo

Date Written: August 9, 2019

Abstract

We document that each day the U.S. Treasury notes have a large proportion of zero returns, because the vast majority of trades are executed at the best ask/bid quotes and spreads are mostly set close to the minimum tick. The proportion of zero returns is negatively correlated with traditional illiquidity measures. Given the distinctive feature (frequent zero returns), conventional jump-detection methods are vulnerable to biases, leading to falsely identifying jumps. We propose a low-cost solution to the biases, and empirically support the arguments by comparing the identification results using the actual data on the Treasury notes and macro-economic news announcements.

Keywords: U.S. Treasury Notes; Proportions of Zero Returns; Trade Execution; Monte Carlo Simulations; Discrete Price Grids; Combined Jump-Identification Methods

JEL Classification: G12; G14; G17

Suggested Citation

Han, SeungOh and Han, SeungOh and Huh, Sahn-Wook and Park, Jeayoung, Detecting Jumps amidst Prevalent Zero Returns: Evidence from the U.S. Treasury Securities (August 9, 2019). Available at SSRN: https://ssrn.com/abstract=3277722 or http://dx.doi.org/10.2139/ssrn.3277722

SeungOh Han

Sejong University ( email )

Seoul
Korea, Republic of (South Korea)

State University of New York (SUNY) - Buffalo ( email )

12 Capen Hall
Buffalo, NY 14260
United States

Wenzhou-Kean University ( email )

88 Daxue Rd
Ouhai
Wenzhou, Zhejiang
China

Sahn-Wook Huh (Contact Author)

State University of New York (SUNY) - Department of Finance ( email )

347 Jacobs Management Center
Buffalo, 14260-4000
United States
716-645-5435 (Phone)
716-645-3823 (Fax)

HOME PAGE: https://sites.google.com/site/sahnwookhuh/home

Jeayoung Park

State University of New York (SUNY) - Buffalo ( email )

Amherst, NY 14260
United States

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