Jumps in Stock Prices: New Insights from Old Data
53 Pages Posted: 17 Aug 2018 Last revised: 19 Mar 2021
Date Written: March 14, 2021
We characterize jump dynamics in stock market returns using a novel series of intraday prices covering almost 90 years. Jump dynamics vary substantially over time. Trends in jump activity relate to secular shifts in the nature of news. Unscheduled news often involving major wars drives jump activity in early decades, whereas scheduled news and especially news pertaining to monetary policy drives jump activity in recent decades. Jump variation measures forecast excess stock market returns, consistent with theory. Results support models featuring a separate jump factor such that risk premium dynamics are not fully captured by volatility state variables.
Keywords: jumps, discontinuities, equity premium, high-frequency data, realized variance, jump variation, stock return predictability
JEL Classification: G12, G17, C22
Suggested Citation: Suggested Citation