Intraday Jump Dynamics: What Predicts Price Jumps?

48 Pages Posted: 4 Oct 2019 Last revised: 19 Feb 2020

See all articles by Saad Khan

Saad Khan

Queen's University - Smith School of Business

Ryan Riordan

Queen's University - Smith School of Business

Date Written: October 2, 2019

Abstract

This paper examines the relationship between liquidity fragmentation and price jumps. Unexpected changes in intraday liquidity fragmentation predict jumps and jump direction. A shock to ask (bid) side liquidity fragmentation increases the probability of positive (negative) jumps by 36%. Decomposing jumps into information and noise components we show that fragmented jumps are noisier. Our work suggests that liquidity suppliers predict jumps and actively manage their exposure to large order imbalances accompanying jumps by fragmenting liquidity. This makes jumps predictable as liquidity suppliers' information is reflected in liquidity fragmentation, minutes before the arrival of a jump.

Keywords: jumps, price efficiency, high frequency price discovery, market liquidity

JEL Classification: G14, G12

Suggested Citation

Khan, Saad and Riordan, Ryan, Intraday Jump Dynamics: What Predicts Price Jumps? (October 2, 2019). Available at SSRN: https://ssrn.com/abstract=3463429 or http://dx.doi.org/10.2139/ssrn.3463429

Saad Khan

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

HOME PAGE: http://www.saadalikhan.com/

Ryan Riordan (Contact Author)

Queen's University - Smith School of Business ( email )

Smith School of Business, Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

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