The dynamics of price jumps in the stock market: an empirical study on Europe and U.S.

Abstract

We study the bivariate jump process involving the S&P 500 and the Euro Stoxx 50, with jumps extracted from high-frequency data. In our analysis, based on Hawkes processes, we find no evidence of contagion across different markets. Nevertheless, we observe significant jump clustering effects though they are limited to intraday time scales. Moreover, we notice that the relative contribution of jumps to the total price variance is larger during tranquil market conditions rather than in periods of stress, providing empirical evidence of this result during the subprime mortgage crisis and the European sovereign debt crisis. Importantly, our results are robust under different jump detection methods.