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Systematic cojumps, market component portfolios and scheduled macroeconomic announcements

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  • Chan, Kam Fong
  • Bowman, Robert G.
  • Neely, Christopher J.

Abstract

This study provides evidence of common bivariate jumps (i.e., systematic cojumps) between the market index and style-sorted portfolios. Systematic cojumps are prevalent in book-to-market portfolios and hence, their risk cannot easily be diversified away by investing in growth or value stocks. Nonetheless, large-cap firms have less exposure to systematic cojumps than small-cap firms. Probit regression reveals that systematic cojump occurrences are significantly associated with worse-than-expected scheduled macroeconomic announcements, especially those pertaining to the Federal Funds target rate. Tobit regression shows that Federal Funds news surprises are also significantly related to the magnitude of systematic cojumps.

Suggested Citation

  • Chan, Kam Fong & Bowman, Robert G. & Neely, Christopher J., 2017. "Systematic cojumps, market component portfolios and scheduled macroeconomic announcements," Journal of Empirical Finance, Elsevier, vol. 43(C), pages 43-58.
    • Handle: RePEc:eee:empfin:v:43:y:2017:i:c:p:43-58
    DOI: 10.1016/j.jempfin.2017.05.003
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    3. Xiao, Xiao & Zhou, Chen, 2018. "The decomposition of jump risks in individual stock returns," Journal of Empirical Finance, Elsevier, vol. 47(C), pages 207-228.

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    More about this item

    Keywords

    Systematic cojumps; Scheduled macroeconomic announcements; Market component portfolios; Federal Funds rate;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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