The decomposition of jump risks in individual stock returns

Xiao Xiao and Chen Zhou ()

Journal of Empirical Finance, 2018, vol. 47, issue C, 207-228

Abstract: This paper proposes a GARCH-jump mixed model for individual stock returns that takes into account four types of risks: the systematic and idiosyncratic jumps and the systematic and idiosyncratic diffusive volatility. By considering a general pricing kernel with all underlying risk factors, we decompose the expected stock return into four risk premiums related to the four types of risks. Empirically, we estimate the model jointly for daily stock returns and market returns and investigate the asset pricing consequences. We find that idiosyncratic jump intensity contributes a major part of the total jump intensity and idiosyncratic jumps are key determinants of expected stock return.

Keywords: Jump–diffusion model; GARCH filtering; Asset pricing (search for similar items in EconPapers)
JEL-codes: C13 C61 G11 G12 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:47:y:2018:i:c:p:207-228

DOI: 10.1016/j.jempfin.2018.04.002

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