Realized Jumps on Financial Markets and Predicting Credit Spreads
Author | : George Tauchen |
Publisher | : |
Total Pages | : 44 |
Release | : 2008 |
ISBN-10 | : OCLC:1290311759 |
ISBN-13 | : |
Rating | : 4/5 ( Downloads) |
Download or read book Realized Jumps on Financial Markets and Predicting Credit Spreads written by George Tauchen and published by . This book was released on 2008 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper extends the jump detection method based on bipower variation to identify realized jumps on financial markets and to estimate parametrically the jump intensity, mean, and variance. Finite sample evidence suggests that the jump parameters can be accurately estimated and that the statistical inferences are reliable under the assumption that jumps are rare and large. Applications to equity market, treasury bond, and exchange rate data reveal important differences in jump frequencies and volatilities across asset classes over time. For investment grade bond spread indices, the estimated jump volatility has more forecasting power than interest rate factors and volatility factors including option-implied volatility, with control for systematic risk factors. The jump volatility risk factor seems to capture the low frequency movements in credit spreads and comoves counter cyclically with the price-dividend ratio and corporate default rate.