Abstract
In this paper, we employ the high-frequency data from Prague Stock Exchange (PSE) and New York Stock Exchange (NYSE) to analyse the variation in extreme price movements and market volatility around the period of fall of Lehman Brothers. The sample ranges from January 2008 to July 2009. We employ the price jump indicators optimal with respect to Type-I and Type-II errors. The former one shows an increase in market volatility and extreme price movements during financial distress, while the later one distinguishes extreme price movements and shows that they do not react in the long-run to fi nancial distress at PSE, while for the matured US market suggests a company/sector-specific reaction. We analyse behaviour of extreme price movements with respect to CDS. Our results suggest that both markets are different - extreme price movements at PSE are independent of CDS movements, while those at NYSE show a sector/company specific reactions to CDS.
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