Do co-jumps impact correlations in currency markets?

44 Pages Posted: 18 Feb 2016 Last revised: 15 Oct 2017

See all articles by Jozef Baruník

Jozef Baruník

Charles University in Prague - Department of Economics; Institute of Information Theory and Automation, Prague

Lukas Vacha

Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic; Charles University in Prague - Department of Economics

Date Written: October 14, 2017

Abstract

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

Barunik, Jozef and Vacha, Lukas, Do co-jumps impact correlations in currency markets? (October 14, 2017). Journal of Financial Markets, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2733736 or http://dx.doi.org/10.2139/ssrn.2733736

Jozef Barunik (Contact Author)

Charles University in Prague - Department of Economics ( email )

Opletalova 26
Prague 1, 110 00
Czech Republic

HOME PAGE: http://ies.fsv.cuni.cz/en/staff/barunik

Institute of Information Theory and Automation, Prague ( email )

Pod vodarenskou vezi 4
CZ-18208 Praha 8
Czech Republic

HOME PAGE: http://staff.utia.cas.cz/barunik/home.htm

Lukas Vacha

Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic ( email )

Pod vodarenskou vezi 4
Praha, CZ-18208
Czech Republic

Charles University in Prague - Department of Economics ( email )

Opletalova 26
Prague, 11000
Czech Republic

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