The identification of price jumps

Jan Hanousek, Evžen Kočenda and Novotný Jan ()
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Novotný Jan: CERGE-EI, Charles University and the Academy of Sciences, Politickych veznu 7, Prague 11000, Czech Republic

Monte Carlo Methods and Applications, 2012, vol. 18, issue 1, 53-77

Abstract: We performed an extensive simulation study to compare the relative performance of many price-jump indicators with respect to false positive and false negative probabilities. We simulated twenty different time series specifications with different intraday noise volatility patterns and price-jump specifications. The double McNemar non-parametric test (Psychometrika 12 (1947), 153–157) has been applied on constructed artificial time series to compare fourteen different price-jump indicators that are widely used in the literature. The results suggest large differences in terms of performance among the indicators, but we were able to identify the best-performing indicators. In the case of false positive probability, the best-performing price-jump indicator is based on thresholding with respect to centiles. In the case of false negative probability, the best indicator is based on bipower variation.

Keywords: Price jumps; price-jump indicators; non-parametric testing; Monte Carlo simulations; financial econometrics (search for similar items in EconPapers)
Date: 2012
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Working Paper: The Identification of Price Jumps (2011)
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DOI: 10.1515/mcma-2011-0019

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