Empirical evidence on jumps in the term structure of the US Treasury Market

Dungey, Mardi; McKenzie, Michael D.; Smith, L. Vanessa

doi:10.1016/j.jempfin.2008.12.002

Cited by 87 publications

(65 citation statements)

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“…The present study examines whether this really happens by scrutinizing the effect of regularly scheduled macroeconomic announcements on systematic cojumps. In linking cojumps to macroeconomic announcements, this study extends the research by Gilder et al (2014), who show that systematic cojumps are related to the timing of macroeconomic 2 announcements and Dungey et al (2009), Evans (2011), Lahaye et al (2011 and Dungey and Hvozdyk (2012), who provide similar findings for cojumps identified separately across individual assets or market indices. Nevertheless, our study differs from previous work in three major respects.…”

Section: Introductionsupporting

confidence: 75%

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Systematic Cojumps, Market Component Portfolios and Scheduled Macroeconomic Announcements,

Chan

Bowman²,

Neely

2017

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Abstract:This study provides evidence of common bivariate jumps (i.e., systematic cojumps) between the market index and style-sorted portfolios. Systematic cojumps are prevalent in book-tomarket portfolios and hence, their risk cannot easily be diversified away by investing in growth or value stocks. Nonetheless, large-cap firms have less exposure to systematic cojumps than small-cap firms. Probit regression reveals that systematic cojump occurrences are significantly associated with worse-than-expected scheduled macroeconomic announcements, especially those pertaining to the Federal Funds target rate. Tobit regression shows that Federal Funds news surprises are also significantly related to the magnitude of systematic cojumps. IntroductionEmpirical asset pricing literature typically characterizes the log price process as a combination of continuous and discontinuous sample paths; see, for example, Andersen et al. (2007), Beber and Brandt (2010) and Rangel (2011). Related to these studies, Das and Uppal (2004) define cojumps as infrequent discontinuous sample paths that occur simultaneously across multiple assets (see also Dungey et al., 2009;Lahaye et al., 2011;Dungey and Hvozdyk, 2012). It is important to consider cojumps -in addition to individual jumps -in order to properly diversify portfolios. Das and Uppal (2004) find that cojumps reduce the benefits of portfolio diversification and can expose highly levered portfolios to large losses. Similarly, Cont and Kan (2011) show that cojump is a key determinant in modelling default contagion. In contrast, Pukthuanthong and Roll (2015) find that individual jumps identified across various countries are only weakly correlated, which the authors interpret as suggesting that cross-border diversification could provide reasonable protection against idiosyncratic jumps.The present study characterizes systematic cojumps, which we define as common bivariate jumps in prices between the market index and its component portfolios sorted based on market capitalization (size) and book-to-market (B/M) price ratio. Similarly, Gilder et al. (2014) define simultaneous jumps in the market index and cojumps among the underlying stocks as systematic cojumps. Fundamental portfolio theory suggests that systematic cojumps are non-diversifiable, because common jumps observed across the market portfolio's underlying components are likely due to market-wide news and this news produces jumps in the market portfolio (Bollerslev et al., 2008, p.234; Gilder et al., 2014, p.443). The present study examines whether this really happens by scrutinizing the effect of regularly scheduled macroeconomic announcements on systematic cojumps. In linking cojumps to macroeconomic announcements, this study extends the research by Gilder et al. (2014), who show that systematic cojumps are related to the timing of macroeconomic 2 announcements and Dungey et al. (2009), Evans (2011), Lahaye et al. (2011 and Dungey and Hvozdyk (2012), who provide similar findings for cojumps identified separately across indiv...

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Section: Introductionsupporting

confidence: 75%

“…Related to these studies, Das and Uppal (2004) define cojumps as infrequent discontinuous sample paths that occur simultaneously across multiple assets (see also Dungey et al, 2009;Lahaye et al, 2011;Dungey and Hvozdyk, 2012). It is important to consider cojumps -in addition to individual jumps -in order to properly diversify portfolios.…”

Section: Introductionmentioning

confidence: 99%

Systematic Cojumps, Market Component Portfolios and Scheduled Macroeconomic Announcements,

Chan

Bowman²,

Neely

2017

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“…For example, jumps in equity indices and individual stocks have been documented in Huang and Tauchen (2005), Andersen et al (2007), Lee and Mykland (2008), Lee and Hannig (2010), Lahaye et al (2011) and Evans (2011), among others. Evidence for the presence of jumps in foreign exchange and Treasury bond markets is given by Dungey et al (2009), Jiang et al (2011) and Dungey and Hvozdyk (2012).…”

Section: Introductionmentioning

confidence: 99%

Cojumps in Stock Prices: Empirical Evidence

2012

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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.

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“…In the literature, the relationship between macroannouncements and returns is widely studied 25 while the sensitivity of jumps is analyzed in a handful of papers such as [1], [2] and [3]. In particular, [2] estimate jumps and cojumps at intradaily frequency mapping them to macro news to find that bond markets are the most sensitive to news releases and that macroannouncement surprises are associated with cojumps even more consistently than jumps.…”

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confidence: 99%

Macroannouncements, bond auctions and rating actions in the European government bond spreads

Boffelli

Urga

2015

Journal of International Money and Finance

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This paper investigates the impact of macroannouncements, government bond auctions and rating actions on the 10-year government bond spreads for Belgium, France, Italy, the Netherlands, Spain with respect to Germany. Using a unique tick-by-tick dataset over 1/02/2009-05/31/2012, we identify the impact of the three drivers via jump and cojump detection procedures. Disentangling the pre-from the post-announcement effects, real economy and forward looking news releases from US and Euro area, country specific Spanish and German macroannouncements, and auctions hold in distressed countries such Italy and Spain have a statistically and economically significant effect.No role is played by rating actions.Keywords: Jumps, Cojumps,Government Bond Spreads, Macroannouncements, Government Bond Auctions, Rating Actions.J.E.L. Classification Numbers: C58, C12, H63, G24.Europe is under stress and integration among European countries seems more fragile than ever.Starting from the subprime crisis in 2007, markets are more aware of the differences between European countries, and this sentiment is reflected, amongst others, in increasing differentials of government bond yields. In 2008 and 2009, government bond spreads became sizable but it was in 5 2010 and 2011 that spreads substantially increase, reaching levels even higher than those experienced in the pre-Euro era. It was just after the famous Mario Draghi's "whatever it takes" in July 2012 that a more normal situation on government bond markets was restored. The European sovereign debt $ We wish to thank participants in the 12th Oxmetrics User Conference (Cass, 3-4 September 2012), in particular Siem Koopman, Sebastien Laurent, and Bill Lyons for useful suggestions. We thank Michael J. Flemming and Jan Novotny for having provided very useful comments on a previous version of the paper. The usual disclaimer applies. Special thanks to Morningstar, in particular to Richard Barden, for having made available the rich data set used in this paper. Simona Boffelli acknowledges financial support from the Centre for Econometric Analysis of Cass Business School.* Centre for Econometric Analysis, Faculty of Finance, Cass Business School, City University London, 106 Bunhill Row, London, EC1Y 8TZ, UK and Bergamo University, Italy. G.Urga@city.ac.uk, Tel: +44 (0)20 7040 8698, Fax: +44 (0)20 7040 8881. Preprint submitted to Journal of International Money and FinanceDecember 22, 2014 crisis involving, although at different extents, all the peripheral countries have questioned the much celebrated markets' self-regulatory power as well as the ability of policy makers and regulators to 10 adopt stability measures and stimulate economic growth. Thus, understanding which factors drive sovereign risk is particularly timely also for the macroeconomic consequences of the comovements associated to these factors. For instance, higher spreads deteriorate borrowing capabilities and market confidence which simultaneously impact on consumption and investment. The way to ameliorate the effects of th...

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Empirical evidence on jumps in the term structure of the US Treasury Market

Cited by 87 publications

References 54 publications

Systematic Cojumps, Market Component Portfolios and Scheduled Macroeconomic Announcements,

Systematic Cojumps, Market Component Portfolios and Scheduled Macroeconomic Announcements,

Cojumps in Stock Prices: Empirical Evidence

Macroannouncements, bond auctions and rating actions in the European government bond spreads

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