Jump Diffusion Processes and Emerging Bond and Stock Markets: An Investigation Using Daily Data

29 Pages Posted: 17 Jul 2015

Date Written: 1997

Abstract

The underlying stochastic processes that drive returns in several emerging bond and stock markets are investigated using the pure diffusion, the jump diffusion, the ARCH pure diffusion, and the ARCH jump diffusion models. The results indicate that jump diffusion models fit the data better than pure diffusion models. Possible sources and linkages of information surprises in emerging stock and bond markets are also investigated. Bond and stock returns of the same country exhibit simultaneous jumps, indicating a possible linkage of the two markets. U.S. equity returns respond to jumps in emerging bond markets but not to jumps in emerging stock markets.

Keywords: emerging markets; ARCH; jump diffusion; information surprises; distribution characteristics

JEL Classification: C51, F36, G12, G14

Suggested Citation

Chahal, Mandeep S. and Jun, Wang, Jump Diffusion Processes and Emerging Bond and Stock Markets: An Investigation Using Daily Data (1997). Multinational Finance Journal, Vol. 1, No. 3, p. 169-197, 1997. Available at SSRN: https://ssrn.com/abstract=2631558

Mandeep S. Chahal (Contact Author)

Enron Corporation

1400 Smith Street
Houston, TX 77002-7316
United States

Wang Jun

SAS Institute Inc. ( email )

100 SAS Campus Drive
Cary, NC 27513-2414
United States

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