Cojumps and Asset Allocation in International Equity Markets
Mohamed Arouri (),
Duc Khuong Nguyen and
Authors registered in the RePEc Author Service: Oussama M'SADDEK
MPRA Paper from University Library of Munich, Germany
This paper examines the patterns of intraday cojumps between international equity markets as well as their impact on international asset holdings and portfolio diversification benefits. Using intraday index-based data for exchange-traded funds as proxies for international equity markets, we document evidence of significant cojumps, with the intensity increasing during the global financial crisis of 2008-2009. The application of the Hawkes process also shows that jumps propagate from the US and other developed markets to emerg- ing markets. Correlated jumps are found to reduce diversification benefits and foreign asset holdings in minimum risk portfolios, whereas idiosyncratic jumps increase the diversification benefits of international equity portfolios. In contrast, the impact of higher-order moments induced by idiosyncratic and systematic jumps on the optimal composition of international portfolios is not significant.
Keywords: Cojumps; Foreign asset holdings; International diversification. (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Date: 2017-01, Revised 2018-05
New Economics Papers: this item is included in nep-mst
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Journal Article: Cojumps and asset allocation in international equity markets (2019)
Working Paper: Cojumps and asset allocation in international equity markets (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:89938
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