The role of intra-day volatility pattern in jump detection: empirical evidence on how financial markets respond to macroeconomic news announcements

Wenying Yao and Jing Tian ()
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Jing Tian: Tasmanian School of Business & Economics, University of Tasmania, http://www.utas.edu.au/business-and-economics

No 2015-05, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: This paper examines the effect of adjusting for the intra-day volatility pattern on jump detection. Using tests that identify the intra-day timing of jumps, we show that before the adjustment, jumps in the financial market have high probability of occurring concurrently with pre-scheduled economy-wide news announcements. We demonstrate that adjustment for the U-shaped volatility pattern prior to jump detection effectively removes most of the association between jumps and macroeconomic news announcements. We find empirical evidence that only news that comes with large surprise can cause jumps in the market index after the volatility adjustment, while the effect of other types of news is largely absorbed through the continuous volatility channel. The FOMC meeting announcement is shown to have the highest association with jumps in the market both before and after the adjustment.

Keywords: volatility pattern; intra-day jumps; news announcements; high frequency data (search for similar items in EconPapers)
JEL-codes: C12 C58 G14 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2015
New Economics Papers: this item is included in nep-ets and nep-mst
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Published by the University of Tasmania. Discussion paper 2015-05

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