Intraday Jump Dynamics: What Predicts Price Jumps?

This paper examines the relationship between liquidity fragmentation and jumps. Unexpected changes in intraday liquidity fragmentation predict jumps and jump direction. A shock to buy (sell) side liquidity fragmentation increases the probability of positive (negative) jumps by 35\%. Decomposing jumps into information and noise components we show that fragmented jumps are noisier. Our work suggests that liquidity suppliers predict jumps and actively manage their exposure to jumps by fragmenting markets before the arrival of information and large order imbalances. This makes jumps predictable as their information is reflected in liquidity fragmentation, minutes before the arrival of a jump.