Abstract

http://ssrn.com/abstract=1981024
 
 

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Investigating Impacts of Self-Exciting Jumps in Returns and Volatility: A Bayesian Learning Approach


Andras Fulop


ESSEC Business School

Junye Li


ESSEC Business School

Jun Yu


Singapore Management University; Singapore Management University - Lee Kong Chian School of Business

August 15, 2013


Abstract:     
The paper proposes a self-exciting asset pricing model that takes into account co-jumps of prices and volatility and self-exciting jump clustering. We employ a Bayesian learning approach to implement a real-time sequential analysis. We find evidence of self-exciting jump clustering since the 1987's market crash, and its importance becomes more obvious at the onset of the 2008's global financial crisis. Learning affects tail behaviors of return distributions, and has important implications for risk management, volatility forecasting, and option pricing. Such results are quite relevant as economic agents need to update their beliefs sequentially over time when new market information arrives.

Number of Pages in PDF File: 59

Keywords: Self-Excitation, Jump Clustering, Tail Behaviors, Parameter Learning, Sequential Bayes Factor, Excess Volatility, Volatility Forecasting, Option Pricing

JEL Classification: C11, C13, C32, G12

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Date posted: January 7, 2012 ; Last revised: November 15, 2013

Suggested Citation

Fulop, Andras and Li, Junye and Yu, Jun, Investigating Impacts of Self-Exciting Jumps in Returns and Volatility: A Bayesian Learning Approach (August 15, 2013). Available at SSRN: http://ssrn.com/abstract=1981024 or http://dx.doi.org/10.2139/ssrn.1981024

Contact Information

Andras Fulop
ESSEC Business School ( email )
Av Bernard Hirsch
B.P 50105
Cergy-Pontoise, 95021
France
HOME PAGE: http://www.andrasfulop.com
Junye Li (Contact Author)
ESSEC Business School ( email )
Avenue Bernard Hirsch
B.P 50105
BP 105 Cergy Cedex, 95021
France
Jun Yu
Singapore Management University ( email )
90 Stamford Rd
Room 5055
Singapore, 178903
Singapore
+6568280858 (Phone)
+6568280833 (Fax)
HOME PAGE: http://www.mysmu.edu/faculty/yujun/
Singapore Management University - Lee Kong Chian School of Business ( email )
469 Bukit Timah Road
Singapore 912409
Singapore

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