Jump imbalance and Chinese stock market returns

This paper constructs jump imbalance indices based on aggregated jump information, namely implied jump information reflecting stocks not driven by market jumps, and exposed jump information reflecting stocks driven by market jumps. Implied jump imbalance (exposed jump imbalance) has a strong positive (negative) predictive power for Chinese stock market returns in both in-sample and out-of-sample analyses, exceeding the predictive power of macroeconomic variables, realized variables, and sentiment indices. The positive predictive power of implied jump imbalance stems from informed stock trading activities. The negative predictive power of the exposed jump imbalance stems from the reversal of transient price panic pressures.