Jumps in Financial Markets: A New Nonparametric Test and Jump Dynamics

Abstract

This paper introduces a new nonparametric test to detect jump arrival times and realized jump sizes in asset prices up to the intra-day level. We demonstrate that the likelihood of misclassification of jumps becomes negligible when we use high-frequency returns. Using our test, we examine jump dynamics and their distributions in the U.S. equity markets. The results show that individual stock jumps are associated with pre-scheduled earnings announcements and other company-specific news events. Addition-ally, S&P 500 Index jumps are associated with general market news announcements. This suggests different pricing models for individual equity options versus index options.