Quantile Relationships Between Standard, Diffusion and Jump Betas Across Japanese Banks
How the banking sector absorbs news is critical to disbursing information to financial markets and the real economy. Using high frequency financial data and quantile regression techniques we characterise some stylised facts about standard betas, diffusion betas, jump betas and the relationships between them for Japanese banking stocks and bank portfolios. Jump betas, which relate to the arrival of unexpected news, are on average, higher and more dispersed than the diffusion betas across the banking sector. While on average, the standard beta is a weighted average of the diffusion and jump betas, the magnitudes of the weights differ significantly across the quantiles, indicating non-linearity in how jump information is incorporated. On average, small bank portfolios have smaller diffusion betas and smaller jump betas than large bank portfolio. While there are no significant differences between the jump-diffusion beta ratios when conditioned by market capitalisation, during times of financial crisis, small bank portfolios have significantly higher jump beta-diffusion beta ratios than large bank portfolios; indicating that during time of financial crisis, small Japanese banks face much higher relative jump risks than larger Japanese banks.
Key words: Beta; Jumps; High-frequency data; Quantile regression; Japanese Banks.
JEL Classification: G12, G21, C58