Cojumping: Evidence from the US Treasury Bond and Futures Market

Dungey, Mardi ; Hvozdyk, Lyudmyla (2011-02)

Working Paper

The basis between spot and future prices will be affected by jump behavior in each asset price, challenging intraday hedging strategies. Using a formal cojumping test this paper considers the cojumping behaviour of spot and futures prices in high frequency US Treasury data. Cojumping occurs most frequently at shorter maturities and higher samling frequencies. We find that the presence of an anticipated macroeconomic news announcement is sufficient to change the probability of observing cojumps. Moreover, news surprises in non-farm payrolls, CPI, GDP and retail sales play a leading role in changing the probabilities of cojumps. However, surprises in non-farm payrolls also increase the probability of the cojumping tests being unable to determine whether jumps in spots and futures occur contemporaneously. On these occasions the market does not clearly signal its short term pricing behavior.