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Initial Jump and Recovering Jump in the S&P 500 Index Returns: A Jump-Recovering-Switching Approach

Author

Listed:
  • Yi-Hao Lai

    (Department of Finance, Dayeh University, Taiwan)

  • Yi-Chiuan Wang

    (Department of Economics, Tunghai University, Taiwan)

  • Wei-Shih Chung

    (Ph.D. Program in Management, Dayeh University, Taiwan and Department of Finance, Overseas Chinese University, Taiwan)

Abstract

This paper develops a three-state jump-recovering-switching model (JRS model), coupling jump processes and a regime-switching methodology, to investigate the dynamic patterns and statistical properties of initial and recovering jumps in S&P 500 stock index returns from 2002-2015. The empirical findings show that a “directional effect” and a “magnitude effect,” two jump phenomena in the returns process from the perspective of overreaction, are empirically supported.

Suggested Citation

  • Yi-Hao Lai & Yi-Chiuan Wang & Wei-Shih Chung, 2018. "Initial Jump and Recovering Jump in the S&P 500 Index Returns: A Jump-Recovering-Switching Approach," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 14(1), pages 51-66, February.
    • Handle: RePEc:jec:journl:v:14:y:2018:i:1:p:51-66
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    jump; regime switching; stock returns;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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