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  



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 classification: C22, G10, G11