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Jump Diffusion Processes and Emerging Bond and Stock Markets: An Investigation Using Daily Data

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  • Mandeep S. Chahal

    (Enron Capital and Trade Resources, U.S.A)

  • Jun Wang

    (SAS Institute Inc., U.S.A)

Abstract

The underlying stochastic processes that drive returns in several emerging bond and stock markets are investigated using the pure diffusion, the jump diffusion, the ARCH pure diffusion, and the ARCH jump diffusion models. The results indicate that jump diffusion models fit the data better than pure diffusion models. Possible sources and linkages of information surprises in emerging stock and bond markets are also investigated. Bond and stock returns of the same country exhibit simultaneous jumps, indicating a possible linkage of the two markets. U.S. equity returns respond to jumps in emerging bond markets but not to jumps in emerging stock markets.

Suggested Citation

  • Mandeep S. Chahal & Jun Wang, 1997. "Jump Diffusion Processes and Emerging Bond and Stock Markets: An Investigation Using Daily Data," Multinational Finance Journal, Multinational Finance Journal, vol. 1(3), pages 169-197, September.
    • Handle: RePEc:mfj:journl:v:1:y:1997:i:3:p:169-197
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    References listed on IDEAS

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    Cited by:

    1. Fernández Lexuri & Hieber Peter & Scherer Matthias, 2013. "Double-barrier first-passage times of jump-diffusion processes," Monte Carlo Methods and Applications, De Gruyter, vol. 19(2), pages 107-141, July.

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    More about this item

    Keywords

    emerging markets; ARCH; jump diffusion; information surprises; distribution characteristics;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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