Working Paper

Systematic Cojumps, Market Component Portfolios and Scheduled Macroeconomic Announcements

Abstract: This study provides evidence of common bivariate jumps (i.e., systematic cojumps) between the market index and style-sorted portfolios. Systematic cojumps are prevalent in book-to-market portfolios and hence, their risk cannot easily be diversified away by investing in growth or value stocks. Nonetheless, large-cap firms have less exposure to systematic cojumps than small-cap firms. Probit regression reveals that systematic cojump occurrences are significantly associated with worse-than-expected scheduled macroeconomic announcements, especially those pertaining to the Federal Funds target rate. Tobit regression shows that Federal Funds news surprises are also significantly related to the magnitude of systematic cojumps.

Keywords: Systematic cojumps; Scheduled macroeconomic announcements; Market component portfolios; federal funds rates;

JEL Classification: C1; E44; G11; G12;

https://doi.org/10.20955/wp.2017.011

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2017-04-26

Number: 2017-11

Pages: 49 pages