Initial Jump and Recovering Jump in the S&P 500 Index Returns: A Jump-Recovering-Switching Approach

Yi-Hao Lai (), Yi-Chiuan Wang and Wei-Shih Chung
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Yi-Hao Lai: Department of Finance, Dayeh University, Taiwan
Yi-Chiuan Wang: Department of Economics, Tunghai University, Taiwan
Wei-Shih Chung: Ph.D. Program in Management, Dayeh University, Taiwan and Department of Finance, Overseas Chinese University, Taiwan

Journal of Economics and Management, 2018, vol. 14, issue 1, 51-66

Abstract: This paper develops a three-state jump-recovering-switching model (JRS model), coupling jump processes and a regime-switching methodology, to investigate the dynamic patterns and statistical properties of initial and recovering jumps in S&P 500 stock index returns from 2002-2015. The empirical findings show that a “directional effect” and a “magnitude effect,” two jump phenomena in the returns process from the perspective of overreaction, are empirically supported.

Keywords: jump; regime switching; stock returns (search for similar items in EconPapers)
JEL-codes: C22 G10 G11 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:jec:journl:v:14:y:2018:i:1:p:51-66

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