Relative Contribution of Common Jumps in Realized Correlation

Abstract

This paper studies common intraday jumps and relative contribution of these common jumps in realized correlation between individual stocks and market index, using high-frequency price data. We find that the common jumps significantly contribute in realized correlation at different threshold cut-offs and both common jumps and realized correlation are relatively consistent across time period including financial crisis. We also find a weak, positive relationship between relative contribution of common jumps and realized correlation, when we further sample high-frequency data into a year. We also observe that the volatility index and market index reveal the strongest relationship.