Systematic Cojumps, Market Component Portfolios and Scheduled Macroeconomic Announcements

49 Pages Posted: 28 Apr 2017 Last revised: 6 Mar 2019

See all articles by Kam Fong Chan

Kam Fong Chan

The University of Western Australia; Financial Research Network (FIRN)

Robert G. Bowman

University of Auckland - Department of Accounting and Finance

Christopher J. Neely

Federal Reserve Bank of St. Louis - Research Division

Date Written: 2017-04-26

Abstract

This study provides evidence of common bivariate jumps (i.e., systematic cojumps) between the market index and style-sorted portfolios. Systematic cojumps are prevalent in book-to-market portfolios and hence, their risk cannot easily be diversified away by investing in growth or value stocks. Nonetheless, large-cap firms have less exposure to systematic cojumps than small-cap firms. Probit regression reveals that systematic cojump occurrences are significantly associated with worse-than-expected scheduled macroeconomic announcements, especially those pertaining to the Federal Funds target rate. Tobit regression shows that Federal Funds news surprises are also significantly related to the magnitude of systematic cojumps.

Keywords: Systematic cojumps, Scheduled macroeconomic announcements, Market component portfolios, Federal Funds rate.

JEL Classification: C1, E44, G11, G12

Suggested Citation

Chan, Kam Fong and Bowman, Robert G. and Neely, Christopher J., Systematic Cojumps, Market Component Portfolios and Scheduled Macroeconomic Announcements (2017-04-26). FRB St. Louis Working Paper No. 2017-11. Available at SSRN: https://ssrn.com/abstract=2959280 or http://dx.doi.org/10.20955/wp.2017.011

Kam Fong Chan (Contact Author)

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Robert G. Bowman

University of Auckland - Department of Accounting and Finance ( email )

Private Bag 92019
Auckland 1001
New Zealand

Christopher J. Neely

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States
314-444-8568 (Phone)
314-444-8731 (Fax)

HOME PAGE: http://www.stls.frb.org/research/econ/cneely/

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