Asset Class Jumps
29 Pages Posted: 30 Aug 2017 Last revised: 19 Apr 2018
Date Written: April 6, 2018
We consider the frequency and correlation of extreme return observations or “jumps” across equities, Treasury bonds, corporate bonds, currencies, commodities, and real estate. Understanding more about jumps is important to investors as diversification across asset classes is diminished if jumps occur often and are highly correlated. Our results indicate that the presence of jumps in all assets. However, the average jump correlation across asset classes is just -0.01, which clearly indicates that diversifying across asset classes provides a meaningful reduction in the jump risk an investor is exposed to.
Keywords: Asset Classes, Jump Risk
JEL Classification: G11, G23
Suggested Citation: Suggested Citation