Brownian motion vs. pure-jump processes for individual stocks

Benoît Sévi and César Baena ()
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César Baena: BEM Bordeaux Management School

Economics Bulletin, 2011, vol. 31, issue 4, 3138-3152

Abstract: Using recent activity signature function methodology developed in Todorov and Tauchen (2010), we provide empirical evidence that individual stocks from the New York Stock Exchange are adequately represented by a Brownian motion plus medium to large (rare) jumps thus invalidating the pure-jump process hypothesis proposed in numerous contributions. This result improves our understanding of the fine structure of asset prices and has implications for derivatives pricing.

Keywords: asset prices; Brownian motion; jumps; activity signature functions (search for similar items in EconPapers)
JEL-codes: C1 G1 (search for similar items in EconPapers)
Date: 2011-11-13
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