Sluggish news reactions: A combinatorial approach for synchronizing stock jumps

Nabil Bouamara, Kris Boudt, Sébastien Laurent and Christopher Neely

No 2024-006, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Stock prices often react sluggishly to news, producing gradual and delayed jumps. Econometricians typically treat these sluggish reactions as microstructure effects and settle for a coarse sampling grid to guard against them. We introduce new methods to synchronize mistimed stock returns on a fine sampling grid that allow us to better approximate the true common jumps in the efficient prices of related stocks in an application to Dow 30 data. The synchronized jumps produce better jump covariance estimates and estimates of the realized jump betas with better forecasting power, and superior trading rule performance.

Keywords: asynchronicity; cojumps; high-frequency data; microstructure noise; realized covariance; rearrangement (search for similar items in EconPapers)
JEL-codes: C02 C58 G11 G14 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2024-03-26, Revised 2025-10-30
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Working Paper: Sluggish news reactions: A combinatorial approach for synchronizing stock jumps (2023)
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DOI: 10.20955/wp.2024.006

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