Jump risk of Presidential election: evidence from Taiwan stock and foreign exchange markets |
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Authors: | Jui-Cheng Hung Shi-Jie Jiang Chien-Liang Chiu |
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Affiliation: | 1. Department of Finance , Yuanpei University , No. 306, Yuanpei St., Hsin Chu 300, Taiwan;2. Department of Banking &3. Finance , Tamkang University , 151 Ying-Chuan Road, Tamsui 251, Taipei County, Taiwan hongrc@mail.ypu.edu.tw;5. Finance , Tamkang University , 151 Ying-Chuan Road, Tamsui 251, Taipei County, Taiwan;6. Department of Banking & |
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Abstract: | This article employs jump-diffusion models, including the ARJI model and the GARCH-jump model, to examine jump intensity and volatility of Taiwan stock and foreign exchange markets during a Presidential election period. The empirical results indicate that, firstly, the ARJI model fits data better than the GARCH-jump model. Secondly, the Presidential election events enhance the jump intensity of both markets and the jump-induced variance is higher than diffusion-induced variance. It reveals the importance of the discrete jump process during a Presidential election period, and might provide some implications for option pricing or hedging strategy. Due to the intervention of the Central Bank in the foreign exchange market during a Presidential election period, the results indicate that jump intensity and volatility of jump size are more moderate. |
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Keywords: | inflation monetary policy |
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