A jumping index of jumping stocks? An MCMC analysis of continuous-time models for individual stocks

This paper examines continuous-time models for the S&P 100 index and its constituents. We find that the jump process of the typical stock looks significantly different than that of the index. Most importantly, the average size of a jump in the returns of the typical stock is positive, while it is negative for the index. Furthermore, the estimates of the parameters for the stochastic processes exhibit pronounced heterogeneity in the cross-section of stocks. For example, we find that the jump size in returns decreases for larger companies. Finally, we find that a jump in the index is not necessarily accompanied by a large number of contemporaneous jumps in its constituent’s stocks. Indeed, we find index jump days on which only one index constituent also jumps. As a consequence, we show that index jumps can be classified as induced by either synchronous price movements of individual stocks or macroeconomic events.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

MORE ABOUT NETSPAR


Mission en strategy           •           Network           •           Organisation           •          Magazine
Board Brief            •            Actionplan 2023-2027           •           Researchagenda

ABOUT NETSPAR

Our partners

B20220412_SPIN_logo+naam_2xPMS_2_voettekst
B20160708_universiteit leiden
B20160708_asr
BPL_Pensioen_logo+pay-off - 1610-1225 v1.1_grijswaarden
B20221103_Zwitserlevengrayscale
View all partners