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Do co-jumps impact correlations in currency markets?

Jozef Baruník () and Lukas Vacha ()

Journal of Financial Markets, 2018, vol. 37, issue C, 97-119

Abstract: We quantify how co-jumps impact correlations in currency markets. To disentangle the continuous part of quadratic covariation from co-jumps, and study the influence of co-jumps on correlations, we propose a new wavelet-based estimator. The proposed estimation framework is able to localize the co-jumps very precisely through wavelet coefficients and identify statistically significant co-jumps. Empirical findings reveal the different behaviors of co-jumps during Asian, European, and U.S. trading sessions. Importantly, we document that co-jumps significantly influence correlation in currency markets.

Keywords: Co-jumps; Currency markets; Realized covariance; Wavelets; Bootstrap (search for similar items in EconPapers)
JEL-codes: C14 C53 G17 (search for similar items in EconPapers)
Date: 2018
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