IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Internationally correlated jumps

  • Pukthuanthong, Kuntara
  • Roll, Richard
Registered author(s):

    Stock returns are characterized by extreme observations, jumps that would not occur under the smooth variation of a Gaussian process. We find that jumps are prevalent in most countries. This has been little investigation of whether the jumps are internationally correlated. Their possible inter-correlation is important for investors because international diversification is less effective when jumps are frequent, unpredictable and strongly correlated. Public supervisors may also mind about widely correlated jumps, as they could bring down certain financial intermediaries. We investigate using daily returns on broad equity indexes from 82 countries and for several statistical measures of jumps. Various jump measures are not in complete agreement but a general pattern emerges. Jumps are internationally correlated but not as much as returns. Although the smooth variation in returns is driven strongly by systematic global factors, jumps are more idiosyncratic and most of them are found in Europe. Some pairs of correlated jumps occur simultaneously but not to the extent of correlated returns. JEL Classification: G11, G15

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1436.pdf
    Download Restriction: no

    Paper provided by European Central Bank in its series Working Paper Series with number 1436.

    as
    in new window

    Length:
    Date of creation: May 2012
    Date of revision:
    Handle: RePEc:ecb:ecbwps:20121436
    Contact details of provider: Postal: 60640 Frankfurt am Main, Germany
    Phone: +49 69 1344 0
    Fax: +49 69 1344 6000
    Web page: http://www.ecb.europa.eu/
    Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Ser-Huang Poon, 2004. "Extreme Value Dependence in Financial Markets: Diagnostics, Models, and Financial Implications," Review of Financial Studies, Society for Financial Studies, vol. 17(2), pages 581-610.
    2. George Tauchen & Hao Zhou, 2006. "Realized jumps on financial markets and predicting credit spreads," Finance and Economics Discussion Series 2006-35, Board of Governors of the Federal Reserve System (U.S.).
    3. Suzanne S. Lee & Per A. Mykland, 2008. "Jumps in Financial Markets: A New Nonparametric Test and Jump Dynamics," Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2535-2563, November.
    4. Mikhail Chernov & A. Ronald Gallant & Eric Ghysels & George Tauchen, 2002. "Alternative Models for Stock Price Dynamics," CIRANO Working Papers 2002s-58, CIRANO.
    5. Benjamin Yibin Zhang & Hao Zhou & Haibin Zhu, 2009. "Explaining Credit Default Swap Spreads with the Equity Volatility and Jump Risks of Individual Firms," Review of Financial Studies, Society for Financial Studies, vol. 22(12), pages 5099-5131, December.
    6. Philipp Hartmann & Stefan Straetmans & Casper de Vries, 2007. "Banking System Stability. A Cross-Atlantic Perspective," NBER Chapters, in: The Risks of Financial Institutions, pages 133-192 National Bureau of Economic Research, Inc.
    7. Bjørn Eraker & Michael Johannes & Nicholas Polson, 2003. "The Impact of Jumps in Volatility and Returns," Journal of Finance, American Finance Association, vol. 58(3), pages 1269-1300, 06.
    8. Hossein Asgharian & Christoffer Bengtsson, 2006. "Jump Spillover in International Equity Markets," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(2), pages 167-203.
    9. Suzanne S. Lee, 2012. "Jumps and Information Flow in Financial Markets," Review of Financial Studies, Society for Financial Studies, vol. 25(2), pages 439-479.
    10. Neil Shephard & Ole Barndorff-Nielsen, 2003. "Econometrics of testing for jumps in financial economics using bipower variation," Economics Series Working Papers 2004-FE-01, University of Oxford, Department of Economics.
    11. Hartmann, Philipp & Straetmans, Stefan & de Vries, Casper, 2001. "Asset market linkages in crisis periods," Working Paper Series 0071, European Central Bank.
    12. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold, 2007. "Roughing It Up: Including Jump Components in the Measurement, Modeling and Forecasting of Return Volatility," CREATES Research Papers 2007-18, School of Economics and Management, University of Aarhus.
    13. Yacine Aït-Sahalia & Julio Cacho-Diaz & Roger J.A. Laeven, 2010. "Modeling Financial Contagion Using Mutually Exciting Jump Processes," NBER Working Papers 15850, National Bureau of Economic Research, Inc.
    14. Tim Bollerslev & Tzuo Hann Law & George Tauchen, 2007. "Risk, Jumps, and Diversification," CREATES Research Papers 2007-19, School of Economics and Management, University of Aarhus.
    15. Xin Huang & George Tauchen, 2005. "The Relative Contribution of Jumps to Total Price Variance," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 3(4), pages 456-499.
    16. Jiang, George J. & Oomen, Roel C.A., 2008. "Testing for jumps when asset prices are observed with noise-a "swap variance" approach," Journal of Econometrics, Elsevier, vol. 144(2), pages 352-370, June.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20121436. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Official Publications)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.