Increased correlation among asset classes: Are volatility or jumps to blame, or both?

Yacine Aït-Sahalia, Dacheng Xiu

Research output: Contribution to journalArticle

17 Scopus citations

Abstract

We develop estimators and asymptotic theory to decompose the quadratic covariation between two assets into its continuous and jump components, in a manner that is robust to the presence of market microstructure noise. Using high frequency data on different assets classes, we find that the recent financial crisis led to an increase in both the quadratic variations of the assets and their correlations. However, we find little evidence to suggest a change between the relative contributions of the Brownian and jump components, as both comove. Co-jumps stem from surprising news announcements that occur primarily before the opening of the US market, and are also accompanied by an increase in Brownian-driven correlations.

Original languageEnglish (US)
Pages (from-to)205-219
Number of pages15
JournalJournal of Econometrics
Volume194
Issue number2
DOIs
StatePublished - Oct 1 2016

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • Continuous and jump components
  • Financial crisis
  • News surprises
  • Overnight jumps
  • Quadratic covariation

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