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Heterogeneity effect of positive and negative jumps on the realized volatility: Evidence from China

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  • Song, Yuping
  • Huang, Jiefei
  • Zhang, Qichao
  • Xu, Yang

Abstract

The existing literature overlooks the different responses of the stock market to jump risk during high and low volatility periods. We examine the impact of positive and negative jumps on China's composite index and sector index volatilities across various volatility regimes from January 4, 2010 to June 30, 2023 based on 5-min high-frequency data and quantile regression. The results indicate that the asymmetry of positive and negative jumps in the emerging sectors is not significant in the high quantiles, but is significant in the middle and low quantiles, compared with the composite index and traditional sectors. The volatility change driven by the negative jump of most emerging sectors indices exhibits a clear ‘J’ shaped distribution. Moreover, COVID-19 has weakened the positive relationship between negative jumps and volatility in traditional sectors. This work alerts risk managers to focus on negative jump risks when markets are in periods of high volatility.

Suggested Citation

  • Song, Yuping & Huang, Jiefei & Zhang, Qichao & Xu, Yang, 2024. "Heterogeneity effect of positive and negative jumps on the realized volatility: Evidence from China," Economic Modelling, Elsevier, vol. 136(C).
    • Handle: RePEc:eee:ecmode:v:136:y:2024:i:c:s0264999324001019
    DOI: 10.1016/j.econmod.2024.106745
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    More about this item

    Keywords

    Jump volatility; Quantile regression; Traditional sectors; Emerging sectors;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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