A Comprehensive Comparison of Alternative Tests for Jumps in Asset Prices

Abstract

This paper presents a comprehensive comparison of nonparametric tests for jumps in the prices of financial assets. The relative performance of eight tests is examined in a Monte Carlo simulation covering scenarios of both finite and infinite activity jumps, and stochastic volatility models with continuous and discontinuous volatility sample paths. The main contribution of the paper is an investigation of the performance of the tests in the presence of various market microstructure effects, including microstructure noise, infrequent trading and deterministic diurnal volatility. The simulation results reveal important differences in terms of size and power of the tests across the different data generating processes. Zero intraday returns and microstructure frictions are shown to induce important distortions. An empirical application to prices from the forex market, stock market and futures market complements the analysis.Quadratic variation, jumps, stochastic volatility, realized measures,high-frequency data