High-Frequency Jump Tests: Which Test Should We Use?

TL;DR

This paper evaluates various high-frequency jump tests, analyzing their size, power, and robustness under different market conditions to guide researchers in selecting appropriate methods.

Contribution

It provides a comprehensive comparison of jump tests, highlighting their strengths and weaknesses in realistic trading scenarios.

Findings

Certain tests perform better under microstructure noise.

Sampling frequency significantly affects test accuracy.

Guidelines are provided for choosing the appropriate jump test.

Abstract

We conduct an extensive evaluation of price jump tests based on high-frequency financial data. After providing a concise review of multiple alternative tests, we document the size and power of all tests in a range of empirically relevant scenarios. Particular focus is given to the robustness of test performance to the presence of jumps in volatility and microstructure noise, and to the impact of sampling frequency. The paper concludes by providing guidelines for empirical researchers about which test to choose in any given setting.