Jumps in Stock Prices: New Insights from Old Data

53 Pages Posted: 17 Aug 2018 Last revised: 19 Mar 2021

See all articles by James A Johnson

James A Johnson

University of Georgia, C. Herman and Mary Virginia Terry College of Business, Students

Marcelo C. Medeiros

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics

Bradley S. Paye

Virginia Tech - Department of Finance, Insurance, and Business Law

Date Written: March 14, 2021

Abstract

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

Johnson, James A and Cunha Medeiros, Marcelo and Paye, Bradley S., Jumps in Stock Prices: New Insights from Old Data (March 14, 2021). Available at SSRN: https://ssrn.com/abstract=3226013 or http://dx.doi.org/10.2139/ssrn.3226013

James A Johnson

University of Georgia, C. Herman and Mary Virginia Terry College of Business, Students ( email )

Athens, GA
United States

Marcelo Cunha Medeiros

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil
+55 21 3114-1078 (Phone)

Bradley S. Paye (Contact Author)

Virginia Tech - Department of Finance, Insurance, and Business Law ( email )

1016 Pamplin Hall (0221)
Blacksburg, VA 24060-0221
United States

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