Title: Expected jumps and the cross-section of equity returns
Authors: Walter Distaso - Imperial College London (United Kingdom) [presenting]
Massimiliano Caporin - University of Padova (Italy)
Nancy Zambon - University of Padova (Italy)
Abstract: How individual equity prices react to stock specific expected jump components is investigated. We find that a portfolio buying stocks with negative expected jump component and selling stocks with positive expected jump component earns significant returns, equal to 51 basis points per month. The returns of the spread portfolio cannot be explained by traditional risk factors. Furthermore, the associated risk premium is positive, very close to the average monthly return, and remain significant after controlling for portfolio characteristics.