Stock Price Jumps and Cross-Sectional Return Predictability
George J. Jiang
Washington State University
University of Iowa - Henry B. Tippie College of Business
March 1, 2012
Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
We identify large discontinuous changes, known as jumps, in daily stock prices and explore the role of jumps in cross-sectional stock return predictability. Our results show that small and illiquid stocks have higher jump returns, to the extent that cross-sectional differences in jumps fully account for the size and illiquidity effects. Based on value-weighted portfolios, jumps also account for the value premium. On the other hand, jumps are not the cause of momentum or net share issue effects. The findings of our study shed new lights on stock return dynamics and present challenges to conventional explanations of stock return predictability.
Number of Pages in PDF File: 45
Keywords: stock return predictability, firm characteristics, stock price jumps, asset pricing theory
JEL Classification: G12, G14
Date posted: September 25, 2008 ; Last revised: February 27, 2013
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