Testing for time-varying jump activity for pure jump semimartingales

Viktor Todorov*

*Corresponding author for this work

Research output: Contribution to journalArticle

5 Scopus citations

Abstract

In this paper, we propose a test for deciding whether the jump activity index of a discretely observed Itô semimartingale of pure-jump type (i.e., one without a diffusion) varies over a fixed interval of time. The asymptotic setting is based on observations within a fixed time interval with mesh of the observation grid shrinking to zero. The test is derived for semimartingales whose "spot" jump compensator around zero is like that of a stable process, but importantly the stability index can vary over the time interval. The test is based on forming a sequence of local estimators of the jump activity over blocks of shrinking time span and contrasting their variability around a global activity estimator based on the whole data set. The local and global jump activity estimates are constructed from the real part of the empirical characteristic function of the increments of the process scaled by local power variations. We derive the asymptotic distribution of the test statistic under the null hypothesis of constant jump activity and show that the test has asymptotic power of one against fixed alternatives of processes with time-varying jump activity.

Original languageEnglish (US)
Pages (from-to)1284-1311
Number of pages28
JournalAnnals of Statistics
Volume45
Issue number3
DOIs
StatePublished - Jun 1 2017

Keywords

  • Central limit theorem
  • High-frequency data
  • Itô semimartingale
  • Jump activity index
  • Jumps
  • Nonparametric test
  • Power variation
  • Stochastic volatility

ASJC Scopus subject areas

  • Statistics and Probability
  • Statistics, Probability and Uncertainty

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