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Jump Risk in the US Financial Sector

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  • Dinesh Gajurel
  • Mardi Dungey
  • Wenying Yao
  • Nagaratnam Jeyasreedharan

Abstract

In this paper we establish empirical evidence for the relationship between the systematic jump betas of financial institutions and two types of systemic risk index: a capital shortfall index and a interconnectedness index. Using high‐frequency data for US financial sector stocks, we show that equity market jumps are positively related to capital shortfall and negatively related to interconnectedness. Higher potential capital shortfall measures of systemic risk lead to a greater sensitivity to systematic jumps, while increased interconnectedness leads to greater resistance. Our findings, along with indicators such as size and leverage, provide a means to identify the possible trade‐offs that regulators might face when assessing the systemic risks of financial institutions, particularly in the context of the cross‐multiple influences within the sector.

Suggested Citation

  • Dinesh Gajurel & Mardi Dungey & Wenying Yao & Nagaratnam Jeyasreedharan, 2020. "Jump Risk in the US Financial Sector," The Economic Record, The Economic Society of Australia, vol. 96(314), pages 331-349, September.
    • Handle: RePEc:bla:ecorec:v:96:y:2020:i:314:p:331-349
    DOI: 10.1111/1475-4932.12565
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    Cited by:

    1. Dinesh Gajurel & Biplob Chowdhury, 2021. "Realized Volatility, Jump and Beta: evidence from Canadian Stock Market," Applied Economics, Taylor & Francis Journals, vol. 53(55), pages 6376-6397, November.

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