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Tag Archives: Volitility
Spurious Jump Detection and Intraday Changes in Volatility
By Matthew Rognile
We investigate the properties of several non-parametric tests for jumps in financial markets. We derive a theoretical property of these tests not observed in any of the previous literature: when they are applied to finitely sampled data, they are generally biased toward finding too many jumps. This results from bias in finite-sample estimation of several important test components. The severity of the bias corresponds to the magnitude of change in volatility over the course of a day. We use data on an intraday volatility pattern in several US equities, which results in quantitatively significant changes in the level of volatility during the day, to undertake Monte Carlo simulations of a price process without jumps. Applying several jump tests to the simulated data, we detect one-half to two-thirds as many jumps as in the observed data, suggesting that many jumps currently detected in empirical applications of these tests are spurious. We also present several possible modifications to jump tests that limit the effect of intraday patterns in volatility, all of which produce dramatically lower estimates of the frequency and importance of jumps.
Advisor: George Tauchen | No JEL Codes on file at this time.
Assessing the Effects of Earnings Surprise on Returns and Volatility with High Frequency Data
By Sam Lim
This paper aims to explore how “earnings surprise”—the difference between earnings
estimates and the actual announced earnings—affects a stock’s volatility and returns using
high frequency data. The results show that earnings surprise is significantly correlated with volatility and overnight returns. Furthermore, an earnings surprise is significantly correlated with an increase in volatility in the trading period immediately following the earnings announcement, but there is no bias indicating which directions prices will go. Even with no “surprise”, the announcement tends to be followed by this increase in volatility. The findings suggest the importance of earnings on equity price valuation.
Advisor: George Tauchen, Tim Bollerslev
