Journal of Economics and Management Volume 14, No. 1 February, 2018

Initial Jump and Recovering Jump in the S&P 500 Index Returns: A Jump-Recovering-Switching Approach

Yi-Hao Lai

Department of Finance, Dayeh University, Taiwan.

Yi-Chiuan Wang

Department of Economics, Tunghai University, Taiwan.

Wei-Shih Chung

Ph.D. Program in Management, Dayeh University, Taiwan. Department of Finance, Overseas Chinese University, Taiwan.

Abstract

This paper develops a three-state jump-recovering-switching model (JRS model), coupling jump processes and a regime-switching methodology, to investigate the dynamic patterns and statistical properties of initial and recovering jumps in S&P 500 stock index returns from 2002-2015. The empirical findings show that a “directional effect” and a “magnitude effect,” two jump phenomena in the returns process from the perspective of overreaction, are empirically supported.

Keywords：Jump, Regime Switching, Stock Returns.

JEL Classifications：C22, G10, G11

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