Realized Jump Risk and Equity Return in China
Guojin Chen, Xiaoqun Liu, Peilin Hsieh, Xiangqin Zhao
Discrete Dynamics in Nature and Society Volume 2014
#002293 20160221 ()
We utilize the realized jump components to explore a new jump (including nonsystematic jump and systematic jump) risk factor model. After estimating daily realized jumps from high-frequency transaction data of the Chinese A-share stocks, we calculate monthly jump size, monthly jump standard deviation, and monthly jump arrival rate and then use those monthly jump factors to explain the return of the following month. Our empirical results show that the jump tail risk can explain the equity return. For the large capital-size stocks, large cap stock portfolios, and index, one-month lagged jump risk factor significantly explains the asset return variation. Our results remain the same even when we add the size and value factors in the robustness tests.

Download full text