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

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Yao, W and Tian, J (2015) The role of intra-day volatility pattern in jump detection : empirical evidence on how financial markets respond to macroeconomic news announcements. Discussion Paper. University of Tasmania. (Submitted)

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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.

Item Type: Report (Discussion Paper)
Keywords: volatility pattern, intra-day jumps, news announcements, high frequency data
Publisher: University of Tasmania
Date Deposited: 14 Jan 2016 23:43
Last Modified: 15 Jan 2016 00:36
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