Jump Risk Premia Across Major International Equity Markets
50 Pages Posted: 9 Jan 2019 Last revised: 10 Jan 2019
Date Written: January 6, 2019
We decompose the non-diversifiable market risk into continuous and discontinuous components and jump systematic risks into positive vs. negative and small vs. large components. We examine their association with equity risk premia across major equity markets. We show that developed markets jumps are more closely linked to the aggregate market index than emerging and frontier ones. The reward for bearing both the continuous and downside jump risks is positive during the pre-crisis period whereas the reward for bearing the upside and large jump risks is negative during the crisis and post-crisis periods. We also provide evidence of significant continuous and discontinuous leverage effects during the pre-crisis period, suggesting that both continuous and discontinuous price and volatility risks share compensations for common underlying risk factors.
Keywords: systematic jump risk, risk premium, leverage effect
JEL Classification: G00, G01, G12, G15
Suggested Citation: Suggested Citation