Do co-jumps impact correlations in currency markets?

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.

Date: 2016-02, Revised 2017-10
New Economics Papers: this item is included in nep-mst
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Journal Article: Do co-jumps impact correlations in currency markets? (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1602.05489

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