Continuous and jump changes in prices processes in the selected stock markets
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Paweł Kliber: Uniwersytet Ekonomiczny w Poznaniu, Wydział Informatyki i Gospodarki Elektronicznej
Collegium of Economic Analysis Annals, 2019, issue 54, 333-344
In classical models of asset price dynamics, it is assumed that price changes can be described by continuous diffusion processes. In such models it is assumed that price changes in the short term are regular and predictable. Alternative models of price dynamics allow the possibility of rapid price changes (“price jumps”) resulting from occurences of unforeseen information. Thus, the price dynamics can be divided into three components: the regular part (diffusion), jumps (large price changes related to unforeseen information) and “noice” generated by short-term, uninformed investors (noice traders). In the study, we divide the total volatility of asset prices (stocks and indices) from the three markets with different levels of development: WSE, BSE and FWB (i.e. the stock exchanges in Warsaw, Budapest and Frankfurt) into these three factors. We argue that the share of jumps in the variation of price movements is connected with the development of the market.
Keywords: jump-diffusion models; realized variation; bipower variation; mictrostructure noice; noice traders (search for similar items in EconPapers)
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