Jump Diffusion Processes and Emerging Bond and Stock Markets: An Investigation Using Daily Data
29 Pages Posted: 17 Jul 2015
Date Written: 1997
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: Suggested Citation