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Realized volatility, jump and beta: evidence from Canadian stock market

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posted on 2023-05-27, 23:47 authored by Gajurel, DP, Chowdhury, B
Inclusion of jump component in the price process has been a long debate in finance literature. In this paper, we identify and characterize jump risks in the Canadian stock market using high-frequency data from the Toronto Stock Exchange. Our results provide a strong evidence of jump clustering - about 90% of jumps occur within first 30 minutes of market opening for trade, and about 55% of jumps are due to the overnight returns. While average intraday jump is negative, jumps induced by overnight returns bring a cancellation effect yielding average size of the jumps to zero. We show that the economic significance of jump component in volatility forecasting is very nominal. Our results further demonstrate that market jumps and overnight returns bring significant changes in systematic risk (beta) of stocks. While the average effect of market jumps on beta is not significantly different than zero, the effect of overnight returns on beta is significant. Overall, our results suggest that jump risk is non-systematic in nature.

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School of Education

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University of Tasmania

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  • Published

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Hobart

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Copyright 2020 University of Tasmania Discussion Paper Series N 2020-11 JEL Classification Numbers: C58, G12

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  • Open

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