Business Faculty Publications
Document Type
Article
Publication Date
2011
Publication Title
Journal of Economics and Finance
Keywords
Accounting/Taxation
Disciplines
Finance and Financial Management
Abstract
Various studies have confirmed the existence of jumps in different financial markets. However, there is sparse theoretical or empirical effort to examine the dynamic relation between jump risk and cross-sectional expected stock returns. We follow a stylized SDF-based diffusion-jump model to examine its testable implications about the relation between cross-section expected excess returns and variations in jump intensities across stocks. The zero-cost portfolio, exploiting the return spreads between the top and bottom decile portfolios formed on jump intensity, could earn an annualized return as high as 24% with an annualized Sharpe ratio of 1.67. A Fama-MacBeth test shows that stock excess returns monotonically decrease in jump intensity even after controlling for other common risk factors.
Recommended Citation
Zhou, H., Zhu, J. (2011). Jump Risk and Cross Section of Stock Returns: Evidence from China's Stock Market. Journal of Economics and Finance, 35, pp. 309-331.
DOI
10.1007/s12197-009-9097-z
Version
Postprint
Publisher's Statement
The final publication is available at Springer via http://dx.doi.org/10.1007/s12197-009-9097-z
Volume
35
