Abstract
We characterize jump dynamics in U.S. stock market returns using a novel series of intraday prices covering almost 90 years. Jump dynamics vary substantially over time. Trends in jump activity relate to secular shifts in the nature of news. Unscheduled news often involving major wars drives jump activity in early decades, whereas scheduled news and especially news pertaining to monetary policy drives jump activity in recent decades. Jump variation measures forecast excess stock market returns, consistent with theory. Results support models featuring a separate jump factor, such that risk premium dynamics are not fully captured by volatility state variables.
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