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Jumps In Financial Markets: A New Nonparametric Test And Jump Clustering

S. Lee, P. Mykland
Published 2005 · Economics

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We introduce a new nonparametric jump test for continuous-time asset pricing models. It distinguishes actual arrivals and different sizes of jumps. Asymptotic distribution of the test statistics is provided, and we demonstrate that it is desirable to use high-frequency data. We explore dynamic jump intensity structure through the test, and find empirical evidence of jump clustering in foreign currency exchange markets. Its implication for financial risk management, in particular value at risk, is also discussed.
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