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The explanatory power of signed jumps for the risk-return tradeoff

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  • Benoît Sévi

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • César Baena

Abstract

Patton and Sheppard (2011) develop the concept of signed jumps as the difference between positive and negative realized positive semivariances. This quantity is well-suited for gauging the risk-return trade-off at high-frequency as it is well-defined each day and, contrary to the squared jump contribution following Barndorff-Nielsen and Shephard (2004, 2006) which is dedicated to rare jumps, it is signed. We show that signed jumps only occasionally help in explaining future returns, at least when the horizon of interest is one-day ahead as in Bali and Peng (2006).

Suggested Citation

  • Benoît Sévi & César Baena, 2013. "The explanatory power of signed jumps for the risk-return tradeoff," Post-Print hal-01500858, HAL.
    • Handle: RePEc:hal:journl:hal-01500858
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    JEL classification:

    • G0 - Financial Economics - - General
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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