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Stock returns are characterized by extreme observations, jumps that would not occur under the smooth variation typical of a Gaussian process. Author finds that jumps are prevalent in most countries. This has been noticed before in some countries, but there has been little investigation of whether the jumps are internationally correlated. Their possible inter-correlation is important for investors because international diversification is less effective when jumps are frequent, unpredictable and strongly correlated. Jumps are internationally correlated but not as much as returns. Although the smooth variation in returns is driven strongly by systematic global factors, jumps are more idiosyncratic.
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