Do Jumps Contribute to the Dynamics of the Equity Premium?

John Maheu, Thomas McCurdy and Xiaofei Zhao ()
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Xiaofei Zhao: Rotman School of Management, University of Toronto, Canada

Working Paper series from Rimini Centre for Economic Analysis

Abstract: This paper investigates whether risks associated with time-varying arrival of jumps and their effect on the dynamics of higher moments of returns are priced in the conditional mean of daily market excess returns. We find that jumps and jump dynamics are significantly related to the market equity premium. The results from our time-series approach reinforce the importance of the skewness premium found in cross-sectional studies using lower-frequency data; and offer a potential resolution to sometimes conflicting results on the intertemporal risk-return relationship. We use a general utility specification, consistent with our pricing kernel, to evaluate the relative value of alternative risk premium models in an out-of-sample portfolio performance application.

JEL-codes: C22 C58 G10 (search for similar items in EconPapers)
Date: 2012-06
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Do jumps contribute to the dynamics of the equity premium? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:47_12

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