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Jump Detection and Analysis Investigation of Media/Telecomm Industry

Jump Detection and Analysis Investigation of Media/Telecomm Industry

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Jump Detection and Analysis Investigation of Media/Telecomm Industry

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  1. Jump Detection and AnalysisInvestigation of Media/Telecomm Industry Prad Nadakuduty Presentation 3 3/5/08

  2. Outline • Introduction • Mathematical Background • Price and Z-max Statistics • Graphs • Summary • Correlation of Jumps • Data taken from 1/2/2001 to 12/29/2006 • 5 min interval (78 observations per day) • Over ~100K total observations • Qualitative findings linking clusters of jumps to industry events / macroeconomic shocks

  3. Introduction • Investigate Media/Telecomm Industry • Verizon Telecommunications (VZ) • AT&T Inc. (T) • Walt Disney Inc. (DIS) • Data taken from 1/2/2001 to 12/29/2006 • 5 min interval (78 observations per day) • Over ~100K total observations • Qualitative findings linking clusters of jumps to industry events / macroeconomic shocks

  4. Mathematical Background • Realized Variation (IV with jump contribution) • Bipower Variation (robust to jumps)

  5. Mathematical Background • Tri-Power Quarticity • Z Tri-Power Max Statistic • Significance Value .999  z > 3.09

  6. Mathematical Background • Previous equations used to estimate integrated quarticity • Relative Jump (measure of jump contribution to total price variance)

  7. Verizon Communications (VZ)5 min Price Data High: 57.40 • 7/19/2001 Low: 26.16 • 7/24/2002

  8. Verizon Communications (VZ)Z-tp Max Statistic Max: 7.3393 • 8/24/2004 Explanation? • Won civil case against text message spammer • Acquisition of MCI 6 months later

  9. Walt Disney Inc. (DIS)5 min Price Data High: 34.88 • 12/19/2006 Low: 13.15 • 8/8/2002

  10. Walt Disney Inc. (DIS)Z-tp Max Statistic Max: 5.4364 • 5/11/2005 Explanation? • Launch of 50 year celebration at theme parks • Released positive earning statements from film/DVD earnings

  11. AT&T (T)5 min Price Data High: 43.95 • 7/12/2001 Low: 13.50 • 4/16/2003

  12. AT&T (T)Z-tp Max Statistic Max: 7.6598 • 9/23/2003 Explanation? • Rumors of merger with BellSouth • Acquires assets from MCI-WorldCom bankruptcy

  13. S&P 5005 min Price Data High: 1443.7 • 12/15/2006 Low: 768 • 10/10/2002

  14. S&P 500Z-tp Max Statistic Max: 11.533 • 11/23/2006 Explanation? • Rumors of merger with BellSouth • Acquires assets from MCI-WorldCom bankruptcy

  15. Summary Statistics Tri-power Quarticity and Max Statistic Significance Level .999  z = 3.09

  16. Correlation of JumpsA Visual Exercise Triple Jump Dates • Jan 3, 2001 • Investors jumping on New Year of trading • AT&T announce price increase • Jun 4, 2004 • AT&T announces VoIP • Verizon enters Yellow Pages business

  17. Regression • Regress tri-power Z max statistic of each firm with that of S&P 500 one week forward • Look for predictive power of any firm • Newey-West  heteroskedasticity robust standard errors • Will provide consistent estimators even if error term is correlated with its own past • Newey command in STATA • newey SPztp l5.ATTztp, lag(5)

  18. Regression StatisticsM&T Firms with S&P 500 SPztp = β1 * L5.VZztp + β0 No coefficients statistically significant  None of these three firms have significant predictive power of S&P 500

  19. Regression StatisticsInter-industry Analysis No statisitically significant coefficients, so these firms are poor indicators of the jump statistic, even of themselves.

  20. Further Exploration • Determine HAR-RV-CJ Forecasts • Include more companies for wider view • Consider investigating industry with more readily available data  Technology, Financial Services • Investigate effect of mergers & acquisitions • Correlate “size” of acquisition with size of test statistic