A Jumping Index of Jumping Stocks? An MCMC Analysis of Continuous-Time Models for Individual Stocks

55 Pages Posted: 20 Mar 2009 Last revised: 15 Dec 2022

See all articles by Alessandro Pollastri

Alessandro Pollastri

affiliation not provided to SSRN

Paulo Rodrigues

Maastricht University - Department of Finance

Christian Schlag

Goethe University Frankfurt; Leibniz Institute for Financial Research SAFE

Norman Seeger

VU Amsterdam - School of Business and Economics

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Date Written: December 15, 2022

Abstract

This paper examines continuous-time models for the S&P 100 index and its constituents. We find that the jump process of the typical stock looks significantly different than that of the index. Most importantly, the average size of a jumps in the returns of the typical stock is positive, while it is negative for the index. Furthermore, the estimates of the parameters for the stochastic processes exhibit pronounced heterogeneity in the cross- section of stocks. For example, we find that the jump size in returns decrease for larger companies. Finally, we find that a jump in the index is not necessarily accompanied by a large number of contemporaneous jumps in its constituents stocks. Indeed, we find index jump days on which only one index constituent also jumps. As a consequence, we show that index jumps can be classified as induced by either synchronous price movements of individual stocks or macroeconomic events.

Keywords: Jump-diffusion models; individual stocks; Markov Chain Monte Carlo

JEL Classification: G11, G12

Suggested Citation

Pollastri, Alessandro and Rodrigues, Paulo and Schlag, Christian and Seeger, Norman, A Jumping Index of Jumping Stocks? An MCMC Analysis of Continuous-Time Models for Individual Stocks (December 15, 2022). SAFE Working Paper No. 372, Available at SSRN: https://ssrn.com/abstract=1361861 or http://dx.doi.org/10.2139/ssrn.1361861

Alessandro Pollastri

affiliation not provided to SSRN

Paulo Rodrigues (Contact Author)

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

Christian Schlag

Goethe University Frankfurt ( email )

Faculty of Economics and Business
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Norman Seeger

VU Amsterdam - School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

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