Price and volatility co-jumps

The nature of the dependence between discontinuities in prices and contemporaneous discontinuities in volatility (co-jumps) has been reported by many as being elusive, in terms of sign, magnitude, and statistical significance. Using a novel identification strategy in continuous time relying on trade...

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Veröffentlicht in:	Journal of financial economics 2016-01, Vol.119 (1), p.107-146
Hauptverfasser:	Bandi, F.M., Renò, R.
Format:	Artikel
Sprache:	eng
Schlagworte:	Co-jumps Equilibrium Infinitesimal cross-moments Jumps in prices Jumps in volatility Return risk premia Risk premiums Stochastic volatility Studies Variance risk premia Volatility
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description	The nature of the dependence between discontinuities in prices and contemporaneous discontinuities in volatility (co-jumps) has been reported by many as being elusive, in terms of sign, magnitude, and statistical significance. Using a novel identification strategy in continuous time relying on trade-level information for spot variance estimation, as well as infinitesimal cross-moments, we document that a sizeable proportion of discontinuous changes in prices are associated with strongly anti-correlated, contemporaneous, discontinuous changes in volatility. Assuming a possibly nonmonotonic pricing kernel, we illustrate the equilibrium implications of price and volatility co-jumps for return and variance risk premia.
doi_str_mv	10.1016/j.jfineco.2015.05.007
format	Article
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source	Elsevier ScienceDirect Journals Complete
subjects	Co-jumps Equilibrium Infinitesimal cross-moments Jumps in prices Jumps in volatility Return risk premia Risk premiums Stochastic volatility Studies Variance risk premia Volatility
title	Price and volatility co-jumps
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