Cojumps and Asset Allocation in International Equity Markets

42 Pages Posted: 28 Nov 2018

See all articles by Mohamed Arouri

Mohamed Arouri

Université Côte d'Azur

Oussama M’saddek

Université Clermont Auvergne

Duc Khuong Nguyen

IPAG Business School

Kuntara Pukthuanthong

University of Missouri, Columbia

Date Written: November 18, 2018

Abstract

This paper examines the patterns of intraday cojumps between international equity markets as well as their impact on international asset holdings and portfolio diversification benefits. Using intraday index-based data for exchange-traded funds as proxies for international equity markets, we document evidence of significant cojumps, with the intensity increasing during the global financial crisis of 2008–2009. The application of the Hawkes process also shows that jumps propagate from the US and other developed markets to emerging markets. Correlated jumps are found to reduce diversification benefits and foreign asset holdings in minimum risk portfolios, whereas idiosyncratic jumps increase the diversification benefits of international equity portfolios. In contrast, the impact of higher-order moments induced by idiosyncratic and systematic jumps on the optimal composition of international portfolios is not significant.

Keywords: cojumps, foreign asset holdings, international diversification

JEL Classification: G10, G11, G15

Suggested Citation

Arouri, Mohamed and M’saddek, Oussama and Nguyen, Duc Khuong and Pukthuanthong, Kuntara, Cojumps and Asset Allocation in International Equity Markets (November 18, 2018). Journal of Economic Dynamics and Control, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3286699

Mohamed Arouri

Université Côte d'Azur ( email )

France

Oussama M’saddek

Université Clermont Auvergne ( email )

49, bd François Mitterrand
Clermont-Ferrand, 63001
France

HOME PAGE: http://www.uca.fr

Duc Khuong Nguyen

IPAG Business School ( email )

184 BD Saint Germain
Paris, 75006
France

HOME PAGE: http://www.ipag.fr/en/

Kuntara Pukthuanthong (Contact Author)

University of Missouri, Columbia ( email )

Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States
6198076124 (Phone)

HOME PAGE: http://https://kuntara.weebly.com

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