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Systemic Co-Jumps

Journal of Financial Economics, Vol. 126, Issue 3, pp. 563-591

Authors:
Massimiliano Caporin,
Aleksey Kolokolov,
Roberto Renò
Research Area:
Financial Markets, Systemic Risk Lab
Date:
Dec 2017
Keywords:
Jumps; Return predictability; Systemic events; Variance risk premium
Abstract:

The simultaneous occurrence of jumps in several stocks can be associated with major financial news, triggers short-term predictability in stock returns, is correlated with sudden spikes of the variance risk premium, and determines a persistent increase (decrease) of stock variances and correlations when they come along with bad (good) news. These systemic events and their implications can be easily overlooked by traditional univariate jump statistics applied to stock indices. They are instead revealed in a clearly cut way by using a novel test procedure applied to individual assets, which is particularly effective on high-volume stocks.

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