Self-Exciting Jumps, Learning, and Asset Pricing Implications

Andras Fulop, Junye Li () and Jun Yu

The Review of Financial Studies, 2015, vol. 28, issue 3, 876-912

Abstract: The paper proposes a self-exciting asset pricing model that takes into account co-jumps between prices and volatility and self-exciting jump clustering. We employ a Bayesian learning approach to implement real-time sequential analysis. We find evidence of self-exciting jump clustering since the 1987 market crash, and its importance becomes more obvious at the onset of the 2008 global financial crisis. We also find that learning affects the tail behaviors of the return distributions and has important implications for risk management, volatility forecasting, and option pricing.

Date: 2015
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