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

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Chowdhury, B ORCID: 0000-0001-7660-7659 and Jeyasreedharan, N ORCID: 0000-0003-1489-989X 2019 , An empirical examination of the jump and diffusion aspects of asset pricing: Japanese evidence.

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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.

Item Type: Report (Discussion Paper)
Authors/Creators:Chowdhury, B and Jeyasreedharan, N
Keywords: Beta, jumps; Japanese banks, high-frequency data, stock returns
Publisher: University of Tasmania
Copyright Information:

Copyright 2019 University of Tasmania

Additional Information:

JEL Classification numbers: G12, G21, C58

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