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Testing for Jumps and Jump Intensity Path Dependence

Corradi, Valentina, Silvapulle, Mervyn J. and Swanson, Norman R. (2018) Testing for Jumps and Jump Intensity Path Dependence Journal of Econometrics.

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In this paper, we fill a gap in the financial econometrics literature, by developing a “jump test” for the null hypothesis that the probability of a jump is zero. The test is based on realized third moments, and uses observations over an increasing time span. The test offers an alternative to standard finite time span tests, and is designed to detect jumps in the data generating process rather than detecting realized jumps over a fixed time span. More specifically, we make two contributions. First, we introduce our largely model free jump test for the null hypothesis of zero jump intensity. Second, under the maintained assumption of strictly positive jump intensity, we introduce a “self excitement test” for the null of constant jump intensity against the alternative of path dependent intensity. The latter test has power against autocorrelation in the jump component, and is a direct test for Hawkes diffusions (see e.g., Aït-Sahalia, Cacho-Diaz and Laeven (2015)). The limiting distributions of the proposed statistics are analyzed via use of a double asymptotic scheme, wherein the time span goes to infinity and the discrete interval approaches zero; and the distributions of the tests are normal and half normal, respectively. The results from a Monte Carlo study indicate that the tests have good finite sample properties.

Item Type: Article
Divisions : Faculty of Arts and Social Sciences > School of Economics
Authors :
Date : 2018
Copyright Disclaimer : © 2018 Elsevier Ltd. All rights reserved.
Uncontrolled Keywords : Diffusion model; Jump intensity; Jump size density; Tricity
Depositing User : Clive Harris
Date Deposited : 01 Mar 2018 12:10
Last Modified : 14 Mar 2018 13:13

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