Internationally Correlated Jumps
Forthcoming, Review of Asset Pricing Studies
64 Pages Posted: 17 Mar 2010 Last revised: 2 Jan 2015
Date Written: January 1, 2015
Stock returns are characterized by extreme observations, jumps that would not occur under the smooth variation typical of a Gaussian process. Jumps are prevalent in most countries but their cross-country co-movements has not been extensively documented. This is important because international diversification is less effective if jumps are frequent, unpredictable and strongly correlated. We investigate using returns on broad equity indexes from 82 countries and modern statistical measures of jumps. We find that jumps are weakly correlated internationally except within Europe. Although the variation in ordinary returns seems to reflect systematic global factors, jumps are more idiosyncratic.
Keywords: diversification, correlation, jumps, asset pricing
JEL Classification: G15, F2, F36
Suggested Citation: Suggested Citation