Detecting jumps and regime-switches in international stock markets returns

This paper explores seven international stock markets (DJIA, Euro STOXX 600, Russell 2000, Nikkei, NASDAQ, FTSE, Global Dow) in the quest for jumps and regime-switches. The methodological framework borrows from the Markov-switching approach and the stochastic modelling literature based on Lévy processes. The econometric procedure is detailed in a twostep fashion. The dataset covers the period from June 2004 to July 2014. The main results uncover changing market dynamics according to economic and/or financial phenomena (e.g., economic crises/growth, news events) with the occurrence of several episodes characterized by a high jump intensity. We advocate the use of such a jump-robust model modulated by a Markov chain to further study the dependence structure of financial time series. JEL Codes: C32; G15; E44