The Cross-Section of Expected Jumps in Equity Returns
34 Pages Posted: 29 Aug 2018 Last revised: 4 Sep 2019
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The Cross-Section of Expected Jumps in Equity Returns
The Cross-Section of Expected Jumps in Equity Returns
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: Suggested Citation