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Unveiling Contemporaneous Relations Between Jump Risk and Cross Section of Stock Returns

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  • Saranya Kshatriya
  • Krishna Prasanna

Abstract

This study analyzes the impact of time varying jump risk on aggregate returns. We, in particular, examine the pricing of jump size and intensity components in the cross section of stock returns for four Asian markets. We use stochastic volatility model with jumps to estimate jump size and intensity. Fama–MacBeth regression results indicate that both jump size and intensity have statistically significant effect on expected returns. A one standard deviation increase in jump intensity beta lowers the expected annual returns by 1% for Japan, 2% for China, 5% for India, and 7% for South Korea. The results are consistent even after controlling for the Fama and French three factors, firm size, and liquidity proxies.

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  • Saranya Kshatriya & Krishna Prasanna, 2020. "Unveiling Contemporaneous Relations Between Jump Risk and Cross Section of Stock Returns," International Review of Finance, International Review of Finance Ltd., vol. 20(3), pages 581-604, September.
    • Handle: RePEc:bla:irvfin:v:20:y:2020:i:3:p:581-604
    DOI: 10.1111/irfi.12235
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    References listed on IDEAS

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