1. Jump Detection and Analysis Investigation 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
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
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
9/23/2003
Explanation?
Rumors of merger with BellSouth
Acquires assets from MCI-WorldCom bankruptcy

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

14. S&P 500 Z-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
Mean
Std. Dev.
Max
Min
Num of jumps
Jump Day %tage
Verizon (VZ)
.5623
1.3690
7.3393 55
N = 1491
(3.68%)
Disney (DIS)
.5832
1.3185
5.4364 61
N = 1492
(4.09%)
AT&T (T)
0.6523
1.4104
7.6598 70
N= 1486
(4.71%)
S&P 500
0.7099
1.4007
11.533
-3.051 57
N = 1514
(3.76%)
Tri-power Quarticity and Max Statistic
Significance Level .999  z = 3.09

16. Correlation of Jumps A Visual Exercise
Count
Frequency
No Jumps
1267
85.26%
Only 1 Jump
200
13.46%
Only 2 Jumps 17
1.14%
Only 3 Jumps 2
0.13%
4 Jumps
0.00%
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 Statistics M&T Firms with S&P 500
SPztp
Coef.
Newey-West Std. Err. t
P>|t|
95% Conf Interval
Verizon
L5.VZztp
-.0447
.0277
-1.62
0.106
[ ]
Disney
L5.DISztp
.01154
.0286
0.40
0.686
[ ]
AT&T
L5.ATTztp
-.0357
-1.40
0.162
[ ]
SPztp = β1 * L5.VZztp + β0
No coefficients statistically significant  None of these three firms have significant predictive power of S&P 500

19. Regression Statistics Inter-industry Analysis
VZztp
DISztp
ATTztp
Coef
Std. Err t
Verizon
L5.VZztp
.0236
.0264
0.90
.0169
.0267
.063
.0718
.0261
2.75
Disney
L5.DISztp
-.0466
.0277
-1.68
.0048
.0252
0.19
-0.246
.0299
-0.82
AT&T
L5.ATTztp
.0166
.0250
0.66
.0031
.0249
0.13
.0325
1.25
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