Cross-Stock Comparisons of the Relative Contribution of Jumps to Total Price Variance
Abstract
This paper uses high-frequency price data to study the relative contribution of jumps
to the total volatility of an equity. In particular, it systematically compares the
relative contribution of jumps across a panel of stocks from three different industries
by computing the cross-correlation of this statistic for pairs of stocks. We identify
a number of empirical regularities in this cross-correlation and compare these observations
to predictions from a standard jump-diffusion model for the joint price process of
two stocks. A main finding of this paper is that this jump-diffusion model, when
calibrated to particular pairs of stocks in the data, cannot replicate some of the
empirical patterns observed. The model predictions differ from the empirical observations
systematically: predictions for pairs of stocks from the same industry are on the
whole much less accurate than predictions for pairs of stocks from different industries.
Some possible explanations for this discrepancy are discussed.
Description
Honors Thesis for Economics, 2012
Type
Honors thesisPermalink
https://hdl.handle.net/10161/5130Citation
Bhattacharya, Vivek (2012). Cross-Stock Comparisons of the Relative Contribution of Jumps to Total Price Variance.
Honors thesis, Duke University. Retrieved from https://hdl.handle.net/10161/5130.Collections
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