Abstract
This study examines individual stocks’ price dynamics by separating continuous and discontinuous price innovations and testing their mechanisms in response to information. Among the 1249 NYSE-listed stocks in our sample, the price data of 642 (607) stocks are better fitted by a pure diffusion (jump-diffusion) model. For more than 93% of the 1249 stocks, their diffusion components vary with the proxies of daily information-based trading. However, only 94 out of 607 jump-diffusion stocks have jump components varying with these proxies. Our findings demonstrate significant heterogeneity in individual stocks’ price dynamics and advocate the importance of model selection.
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