Pricing of Firm Specific Jump Risk

47 Pages Posted: 19 Sep 2012 Last revised: 24 Oct 2012

See all articles by Marius Ascheberg

Marius Ascheberg

Goethe University Frankfurt

Holger Kraft

Goethe University Frankfurt

Yildiray Yildirim

Zicklin School of Business, Baruch College - The City University of New York

Date Written: October 23, 2012

Abstract

This paper studies the relationship between the cross section of stock returns and firm specific jump risk. Using option data, we estimate various option-based time-series. Sorting firms according to their firm specific jump risk, we find that this risk is priced for small stocks. Furthermore, we show that it is genuinely idiosyncratic, and not related to systematic volatility or systematic jump risk. We also find that firms have similar exposures to upward and downward jumps and both jumps are negatively priced, but the effect is more pronounce for downward jumps. Besides, it is documented that our results are closely linked to the idiosyncratic volatility (ivol) anomaly by Ang et al. (2006). Therefore, if ivol proxies for an omitted factor, our results suggest that the exposure to idiosyncratic jump risk is related to this factor.

Keywords: cross-section of stock returns, idiosyncratic risk

JEL Classification: G12, G14

Suggested Citation

Ascheberg, Marius and Kraft, Holger and Yildirim, Yildiray, Pricing of Firm Specific Jump Risk (October 23, 2012). Available at SSRN: https://ssrn.com/abstract=2148239 or http://dx.doi.org/10.2139/ssrn.2148239

Marius Ascheberg

Goethe University Frankfurt ( email )

Faculty of Economics and Business Administration
Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

Holger Kraft (Contact Author)

Goethe University Frankfurt ( email )

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

Yildiray Yildirim

Zicklin School of Business, Baruch College - The City University of New York ( email )

55 Lexington Ave., Box B13-260
New York, NY 10010
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
179
Abstract Views
1,366
rank
185,572
PlumX Metrics