Jump Risk Premia Across Major International Equity Markets

50 Pages Posted: 9 Jan 2019 Last revised: 10 Jan 2019

See all articles by Mohamed El Hedi Arouri

Mohamed El Hedi Arouri

EDHEC Business School

Oussama M’saddek

Université Clermont Auvergne

Kuntara Pukthuanthong

University of Missouri, Columbia

Date Written: January 6, 2019

Abstract

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

Arouri, Mohamed El Hedi and M’saddek, Oussama and Pukthuanthong, Kuntara, Jump Risk Premia Across Major International Equity Markets (January 6, 2019). Journal of Empirical Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3311059

Mohamed El Hedi Arouri

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

Oussama M’saddek

Université Clermont Auvergne ( email )

49, bd François Mitterrand
Clermont-Ferrand, 63001
France

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

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: https://www.kuntara.net/

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