The Cross-Section of Expected Jumps in Equity Returns

34 Pages Posted: 29 Aug 2018 Last revised: 4 Sep 2019

See all articles by Massimiliano Caporin

Massimiliano Caporin

University of Padua - Department of Statistical Sciences

Walter Distaso

Imperial College Business School

Nancy Zambon

University of Padua - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 3, 2019

Abstract

We investigate how individual equity prices react to stock specific expected jump components. We find that a portfolio buying stocks with negative expected jump component and selling stocks with positive expected jump component earns significant returns, equal to 51 basis points per month.

The returns of the spread portfolio cannot be explained by traditional risk factors and are robust to different model specifications. Furthermore, the associated risk premium is very close to the average monthly return, and remains significant after controlling for portfolio characteristics.

Keywords: jumps, equity returns, risk premia

JEL Classification: G12, C58

Suggested Citation

Caporin, Massimiliano and Distaso, Walter and Zambon, Nancy, The Cross-Section of Expected Jumps in Equity Returns (September 3, 2019). Available at SSRN: https://ssrn.com/abstract=3235354 or http://dx.doi.org/10.2139/ssrn.3235354

Massimiliano Caporin

University of Padua - Department of Statistical Sciences ( email )

Via Battisti, 241
Padova, 35121
Italy

Walter Distaso (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Nancy Zambon

University of Padua - Department of Economics ( email )

via Del Santo 33
Padova, 35123
Italy

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