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Time‐varying jump risk premia in stock index futures returns
Author(s) -
Chan Wing Hong,
Feng Liling
Publication year - 2012
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.20540
Subject(s) - autoregressive conditional heteroskedasticity , economics , jump , futures contract , econometrics , volatility (finance) , stock index futures , index (typography) , autoregressive model , stock market index , stock (firearms) , futures market , risk premium , financial economics , stock market , computer science , physics , mechanical engineering , paleontology , horse , quantum mechanics , world wide web , engineering , biology
This study tests the presence of time‐varying risk premia associated with extreme news events or jumps in stock index futures return. The model allows for a dynamic jump component with autoregressive jump intensity, long‐range dependence in volatility dynamics, and a volatility in mean structure separately for the normal and extreme news events. The results show significant jump risk premia in four stock market index futures returns including the DAX, FTSE, Nikkei, and S&P500 indices. Our results are robust to various specifications of conditional variance including the plain GARCH, component GARCH, and Fractionally Integrated GARCH models. We also find the time‐varying risk premium associated with normal news events is not significant across all indices. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark 32:639–659, 2012