Stock price jumps : news and volume play a minor role

In order to understand the origin of stock price jumps, we crosscorrelate high-frequency time series of stock returns with different news feeds. We find that neither idiosyncratic news nor market wide news can explain the frequency and amplitude of price jumps. We find that the volatility patterns around jumps and around news are quite different: jumps are followed by increased volatility, whereas news tend on average to be followed by lower volatility levels. The shape of the volatility relaxation is also markedly different in the two cases. Finally, we provide direct evidence that large transaction volumes are not responsible for large price jumps. We conjecture that most price jumps are induced by order flow fluctuations close to the point of vanishing liquidity. Why do stock prices change? The traditional answer, within the theory of efficient markets, is that prices move because some new piece of information becomes available, leading to a revision of the expectations of market participants. If this picture was correct, and in the absence of “noise traders”, the price should essentially be constant between two news items, and move suddenly around the release time of the news. Noise trading should add high frequency mean-reverting noise between news, that should not contribute to the long term volatility of the price. News release should be the main determinant of price volatility. There are, however, various pieces of evidence suggesting that this picture is incorrect. Volatility