Cojumps in stock prices: Empirical evidence

Abstract

We examine contemporaneous jumps (cojumps) among individual stocks and a proxy for the market portfolio. We show, through a Monte Carlo study, that using intraday jump tests and a coexceedance criterion to detect cojumps has a power similar to the cojump test proposed by Bollerslev et al. (2008). However, we also show that we should not expect to detect all common jumps comprising a cojump when using such coexceedance based detection methods. Empirically, we provide evidence of an association between jumps in the market portfolio and cojumps in the underlying stocks. Consistent with our Monte Carlo evidence, moderate numbers of stocks are often detected to be involved in these (systematic) cojumps. Importantly, the results suggest that market-level news is able to generate simultaneous large jumps in individual stocks. We also find evidence of an association between systematic cojumps and Federal Funds Target Rate announcements.

Collective synchronization and high frequency systemic instabilities in financial markets

“…To the best of our knowledge, the association between extreme equity price movements and the news arrival has been previously investigated in [11,19], finding a positive association, but the results have been challenged in [20]. Table 11 in [15] suggests the existence of a particularly strong relationship between FOMC announcements and the arrival of a systemic event (defined as an event when the market index jumps). However, none of the previous works performs an analysis of the association between news and extreme movements conditional on the level of systemicity of the event.…”

Modelling systemic price cojumps with Hawkes factor models

“…However, there has been less research on cojumps (i.e. simultaneous jumps in two or more stock prices) and most of them are of empirical nature such as [21,22,23,24]; exceptions are the papers of [25,26] and [27] on cojump estimation and modelling.…”

“…Recent approaches sharing some aspects with the current paper are discussed in [27,43] and [24]. The former design a model of asset returns able to capture periods of crisis characterized by contagion and consider it to solve the problem of optimal investment-consumption for a log-utility investor.…”

Do co-jumps impact correlations in currency markets?

“…Recently, spectral techniques for co-jump detection have been employed by Bibinger and Winkelmann (2015). Gilder et al (2014) use the approach of Bollerslev et al (2008) to identify co-jumps at daily frequency. Because this method is not robust against disjoint co-jumps, these authors further utilize tests for intraday jumps, as described by Andersen et al (2010).…”