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Benoît Sévi and César Baena
 
''Brownian motion vs. pure-jump processes for individual stocks''
( 2011, Vol. 31 No.4 )
 
 
Using recent activity signature function methodology developed in Todorov and Tauchen (2010), we provide empirical evidence that individual stocks from the New York Stock Exchange are adequately represented by a Brownian motion plus medium to large (rare) jumps thus invalidating the pure-jump process hypothesis proposed in numerous contributions. This result improves our understanding of the fine structure of asset prices and has implications for derivatives pricing.
 
 
Keywords: asset prices, Brownian motion, jumps, activity signature functions
JEL: C1 - Econometric and Statistical Methods: General
 
Manuscript Received : Sep 20 2011 Manuscript Accepted : Nov 13 2011

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