Preprintgreen2008

Stock price jumps: news and volume play a minor role

Armand Joulin · Augustin Lefevre · Daniel Grunberg · Jean‐Philippe Bouchaud

141 citations0/0 files storedRePEc: Research Papers in Economics

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Financial Markets and Investment Strategies Stochastic processes and financial applications Financial Risk and Volatility Modeling

Abstract

In order to understand the origin of stock price jumps, we cross-correlate high-frequency time series of stock returns with different news feeds. We find that neither idiosyncratic news nor market wide news can explain the frequency and amplitude of price jumps. We find that the volatility patterns around jumps and around news are quite different: jumps are followed by increased volatility, whereas news tend on average to be followed by lower volatility levels. The shape of the volatility relaxation is also markedly different in the two cases. Finally, we provide direct evidence that large transaction volumes are_not_ responsible for large price jumps. We conjecture that most price jumps are induced by order flow fluctuations close to the point of vanishing liquidity.

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References

1985Continuous Auctions and Insider Trading 1980Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?2001Empirical properties of asset returns: stylized facts and statistical issues 2003A theory of power-law distributions in financial market fluctuations 1988What Moves Stock Prices?1999Noise Dressing of Financial Correlation Matrices 1999Scaling of the distribution of price fluctuations of individual companies 2000Modelling fluctuations of financial time series: from cascade process to stochastic volatility model

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