The Fine Structure of Asset Returns: An Empirical Investigation

2002/04/01 by Peter Carr, Helyette Geman, Hélyette Geman +2 · 1,833 citations
Economics, Econometrics and Finance · #Asset (computer security) #Business #Capital Investment and Risk Analysis #Complex Systems and Time Series Analysis #Computer science #Econometrics #Economics #Financial economics #Stochastic processes and financial applications

paper · doi:10.1086/338705

published in The Journal of Business 75(2), 305-333 (University of Chicago Press)

openalex publication_date 2002/04/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/05

Abstract

We investigate the relative importance of diffusion and jumps in a new jump diffusion model for asset returns. In contrast to the standard modelling of jumps for asset returns, the jump component of our process can display finite or infinite activity, and finite or infinite variation. Empirical investigations of time series indicate that index dynamics are essentially devoid of a diffusion component, while this component may be present in the dynamics of individual stocks. This result leads to the conjecture that the risk-neutral process should be free of a diffusion component for both indices and individual stocks. Empirical investigation of options data tends to confirm this conjecture. We conclude that the statistical and risk-neutral processes for indices and stocks tend to be pure jump processes of innite activity and finite variation.

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