Persistence of jump-induced tail risk and limits to arbitrage
提出计算个股跳跃引发尾部风险溢价的新方法，发现负向跳跃尾部风险溢价显著预测下月负收益，且溢价越大影响越持久，价格吸收信息需十天滞后，与套利限制一致。
We present a novel methodology to calculate the jump-induced tail risk premium for individual stocks and examine its effect on the following-month’s returns. The existence of a premium for bearing negative jump-induced tail risk is significantly associated with negative one-month future returns. In contrast, the existence of a positive premium for bearing jump-induced tail risk has no such significant predictive power. Further, we find that the larger is the magnitude of the premium for negative jump-induced tail risk, the greater and longer-lasting is its impact on expected returns. Lastly, the observed ten-day lag taken to fully incorporate negative jump tail information into price is consistent with limits to arbitrage in the underlying stocks.