Do Jumps Matter in Emerging Market Portfolio Strategies?

In this paper we re-examine whether formally modeling jump dynamics in emerging equity market returns may offer appreciable payoffs in a statistical as well as a portfolio perspective. Although there is a well-developed literature concerning the statistical properties of equity returns from emerging markets and specifically on jumps, the agreement so far has been that such features are at best of moderate interest to long-run, risk-averse portfolio optimizers that use monthly data. In our paper we investigate how, why, and when this may not be the case and concludes that optimal international portfolio choices may be severely affected by the fact that emerging stock market returns are more vulnerable to deviations from normality induced by the presence of systemic jumps.