Do co-jumps impact correlations in currency markets?
44 Pages Posted: 18 Feb 2016 Last revised: 15 Oct 2017
Date Written: October 14, 2017
We quantify how co-jumps impact correlations in currency markets. To disentangle the continuous part of quadratic covariation from co-jumps, and study the influence of co-jumps on correlations, we propose a new wavelet-based estimator. The proposed estimation framework is able to localize the co-jumps very precisely through wavelet coefficients and identify statistically significant co-jumps. Empirical findings reveal the different behaviors of co-jumps during Asian, European and U.S. trading sessions. Importantly, we document that co-jumps significantly influence correlation in currency markets.
Keywords: co-jumps, currency markets, realized covariance, wavelets, bootstrap
JEL Classification: C14, C53, G17
Suggested Citation: Suggested Citation