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Do co-jumps impact correlations in currency markets?

Jozef Baruník () and Lukas Vacha ()

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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.

New Economics Papers: this item is included in nep-mst
Date: 2016-02, Revised 2017-10
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Journal Article: Do co-jumps impact correlations in currency markets? (2018) Downloads
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