News Arrival, Time-Varying Jump Intensity, and Realized Volatility: Conditional Testing Approach

Journal of Financial Econometrics, Forthcoming

79 Pages Posted: 1 Jun 2022

See all articles by Deniz Erdemlioglu

Deniz Erdemlioglu

IESEG School of Management, Department of Finance, LEM-CNRS 9221, France

Xiye Yang

Rutgers, The State University of New Jersey - Department of Economics

Date Written: May 12, 2022

Abstract

This paper introduces new econometric tests to identify stochastic intensity jumps in high-frequency data. Our approach exploits the behavior of a time-varying stochastic intensity and allows us to assess how intensely stock market reacts to news. We describe the asymptotic properties of our test statistics, derive the associated central limit theorem and show in simulations that the tests have good size and reasonable power in finite-sample cases. Implementing our testing procedures on the S&P 500 exchange-traded fund (ETF) data, we find strong evidence for the presence of intensity jumps surrounding the scheduled Federal Open Market Committee (FOMC) policy announcements. Intensity jumps occur very frequently, trigger sharp increases in realized volatility and arrive when differences-in-opinion among market participants are large at times of FOMC press releases. Unlike intensity jumps, volatility jumps fail to explain the variation in news-induced realized volatility.

Keywords: Time-varying jump intensity, Volatility jumps, High-frequency data, News announcements, Realized volatility, FOMC events

JEL Classification: C12, C14, C58, G10, G12

Suggested Citation

Erdemlioglu, Deniz and Yang, Xiye, News Arrival, Time-Varying Jump Intensity, and Realized Volatility: Conditional Testing Approach (May 12, 2022). Journal of Financial Econometrics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4118291

Deniz Erdemlioglu (Contact Author)

IESEG School of Management, Department of Finance, LEM-CNRS 9221, France ( email )

3 rue de la Digue
Lille, 59000
France

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

Xiye Yang

Rutgers, The State University of New Jersey - Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States

HOME PAGE: http://economics.rutgers.edu/people/474-xiye-yang

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