Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5097494 | Journal of Econometrics | 2007 | 56 Pages |
Abstract
We develop a sequential procedure to test the adequacy of jump-diffusion models for return distributions. We rely on intraday data and nonparametric volatility measures, along with a new jump detection technique and appropriate conditional moment tests, for assessing the import of jumps and leverage effects. A novel robust-to-jumps approach is utilized to alleviate microstructure frictions for realized volatility estimation. Size and power of the procedure are explored through Monte Carlo methods. Our empirical findings support the jump-diffusive representation for S&P500 futures returns but reveal it is critical to account for leverage effects and jumps to maintain the underlying semi-martingale assumption.
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Torben G. Andersen, Tim Bollerslev, Dobrislav Dobrev,