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Internationally Correlated Jumps

Internationally Correlated Jumps Stock returns are characterized by extreme observations, jumps that would not occur under the smooth variation typical of a Gaussian process. Jumps are prevalent in most countries, but their cross-country comovements have not been extensively documented. This is important because international diversification is less effective if jumps are frequent, unpredictable, and strongly correlated. We investigate using returns on broad equity indexes from eighty-two countries and modern statistical measures of jumps. We find that jumps are weakly correlated internationally, except within Europe. Although the variation in ordinary returns seems to reflect systematic global factors, jumps are more idiosyncratic. (JEL G11, G12, G15) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Asset Pricing Studies Oxford University Press

Internationally Correlated Jumps

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References (38)

Publisher
Oxford University Press
Copyright
The Author 2014. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oup.com
ISSN
2045-9920
eISSN
2045-9939
DOI
10.1093/rapstu/rau009
Publisher site
See Article on Publisher Site

Abstract

Stock returns are characterized by extreme observations, jumps that would not occur under the smooth variation typical of a Gaussian process. Jumps are prevalent in most countries, but their cross-country comovements have not been extensively documented. This is important because international diversification is less effective if jumps are frequent, unpredictable, and strongly correlated. We investigate using returns on broad equity indexes from eighty-two countries and modern statistical measures of jumps. We find that jumps are weakly correlated internationally, except within Europe. Although the variation in ordinary returns seems to reflect systematic global factors, jumps are more idiosyncratic. (JEL G11, G12, G15)

Journal

The Review of Asset Pricing Studies – Oxford University Press

Published: Jun 26, 2015

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