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Activity Number:
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205
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Type:
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Contributed
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Date/Time:
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Monday, August 7, 2006 : 2:00 PM to 3:50 PM
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Sponsor:
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Business and Economics Statistics Section
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| Abstract - #307523 |
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Title:
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High-Frequency Returns, Jumps, and the Mixture of Normals Hypothesis
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Author(s):
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Jeff Fleming*+ and Brad Paye
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Companies:
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Rice University and Rice University
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Address:
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Jones Graduate School, Houston, TX, 77005,
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Keywords:
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asset prices ; bipower variation ; integrated volatility ; jumps ; realized volatility ; stock returns
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Abstract:
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Previous empirical studies find both evidence of jumps in asset prices and that returns standardized by realized volatility are approximately standard normal. This paper resolves the apparent contradiction. We show, using high-frequency returns data for 20 heavily-traded US stocks, that microstructure noise may bias kurtosis estimates for standardized returns. Applying a bias-corrected realized variance estimator, we find that standardized returns are platykurtotic and that the standard normal distribution is easily rejected. When daily returns are standardized using realized bipower variation, an estimator for integrated volatility that is robust to the presence of jumps, the resulting series appears to be approximately standard normal. These results support the view that jumps should be included in models of stock prices.
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- The address information is for the authors that have a + after their name.
- Authors who are presenting talks have a * after their name.
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