Marcelo Medeiros (Pontifical Catholic University of Rio de Janeiro) on "Jumps in Stock Prices: New Insights from Old Data" (with James A. Johnson and Bradley S. Paye)

Speaker:  Marcelo Medeiros - Pontifical Catholic University of Rio de Janeiro
  Thursday, May 24, 2018 at 12:30 PM Polo Santa Marta, Via Cantarane 24, Sala Vaona
We characterize the long-run dynamics of jump activity in stock market returns using a novel series of intraday stock prices covering over 80 years. Jump activity varies over long horizons in an economically significant manner. Jump rates are historically greatest during the 1940s and 50s. Unscheduled news appears to drive most jumps during this era, whereas scheduled news drives jumps at an increasing rate over recent decades.
We document that the diffusive and jump components of volatility share a common long-run component. Aside from a downward level shift in the 1960s, the fraction of return variation attributable to jumps appears to be a stationary, short memory series, indicating an error correction mechanism between the jump and di usive components of volatility. Jump variation measures forecast excess stock market returns, consistent with the hypothesis that aggregate jump risk commands a premium.

Programme Director
Roberto Renò

Publication date
December 11, 2017