The Reality of Stock Market Jumps Diversification (with Internet Appendix)

49 Pages Posted: 14 Feb 2017 Last revised: 17 Nov 2017

See all articles by Ke Chen

Ke Chen

University of Manchester - Manchester Business School

Luiz Vitiello

University of Essex - Essex Business School

Stuart Hyde

Alliance Manchester Business School - University of Manchester

Ser-Huang Poon

Alliance Manchester Business School, University of Manchester; Alan Turing Institute

Date Written: February 15, 2017

Abstract

We propose a non-parametric procedure for estimating systemic co-jumps and independent idiosyncratic jumps, and study associated news reported in Factiva and Bloomberg for thirty five stock markets from 1988 to 2014. Our results suggest that it is important to distinguish between systemic co-jumps and idiosyncratic jumps. We find idiosyncratic jumps to have economically significant impact on portfolios weights involving emerging markets. Both jumps have important implications for home-bias investors. Our news analysis suggests systemic jumps are typically caused by currency crises, sectoral failure, liquidity issues, and deteriorating economic climate, while idiosyncratic jumps are caused by political unrest, currency instability, and large firm effects on small economies. Many of the idiosyncratic jumps in fact originate from the same source but impact different stock markets at different times and levels.

Keywords: Asset allocation, international portfolio diversification, home bias, systemic and idiosyncratic jumps, jump news

JEL Classification: G11, G15

Suggested Citation

Chen, Ke and Vitiello, Luiz and Hyde, Stuart and Poon, Ser-Huang, The Reality of Stock Market Jumps Diversification (with Internet Appendix) (February 15, 2017). Available at SSRN: https://ssrn.com/abstract=2915839 or http://dx.doi.org/10.2139/ssrn.2915839

Ke Chen

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Luiz Vitiello

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Stuart Hyde

Alliance Manchester Business School - University of Manchester ( email )

Booth Street West
Mezzanine Floor, Crawford House
Manchester M15 6PB
United Kingdom
44 (0) 161 275 4017 (Phone)
44 (0) 161 275 4023 (Fax)

Ser-Huang Poon (Contact Author)

Alliance Manchester Business School, University of Manchester ( email )

Alliance Manchester Business School
Booth Street West
Manchester, Manchester M15 6PB
United Kingdom
+44 161 275 4031 (Phone)
+44 161 275 4023 (Fax)

HOME PAGE: http://www.manchester.ac.uk/research/Ser-huang.poon/

Alan Turing Institute ( email )

British Library, 96 Euston Road
London, NW12DB
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
121
Abstract Views
752
rank
272,925
PlumX Metrics