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An empirical examination of the jump and diffusion aspects of asset pricing: Japanese evidence

Biplob Chowdhury () and Nagaratnam Jeyasreedharan ()
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Biplob Chowdhury: Tasmanian School of Business & Economics, University of Tasmania
Nagaratnam Jeyasreedharan: Tasmanian School of Business & Economics, University of Tasmania, http://www.utas.edu.au/profiles/staff/economics/nagaratnam-jeyasreedharan

No 2019-02, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: Using an extension of the standard CAPM beta we decompose the beta of Japanese banking stocks into diffusion and jump components using high frequency data from 2001 to 2012. We find that jump betas on average are larger than diffusion betas, indicating that Japanese banking stocks respond differently to information associated with continuous and discontinuous market movements. Larger banks are more sensitive to discontinuities than their counterparts; high leveraged banks are more exposed to unexpected market-wide news whereas profitable banks are equally sensitive to both continuous and jump market moves. By allowing for asymmetric preferences of investors for losses versus gains we show that diffusion and jump betas both carry large premia in both up and down markets, but that these premia differ substantially during periods of economic stress from those present during normal conditions.

Keywords: Beta, jumps; Japanese banks, high-frequency data, stock returns (search for similar items in EconPapers)
JEL-codes: G12 G21 C58 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2019
New Economics Papers: this item is included in nep-mst
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Published by the University of Tasmania. Discussion paper 2019-02

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http://eprints.utas.edu.au/29545/1/2019-02_Chowdhury_Jeyasreedharan.pdf

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