Jumps Across Asset Classes and Their Diversification Benefits: Evidence from Vietnamese Asset Markets

Abstract

This study considers the jump correlations across gold, imported crude oil, the Ho Chi Minh stock exchange (VN-Index), the Ha Noi stock exchange index (HNX-Index), and their impacts on diversification benefits. Understanding jumps is critical for investors because cross-asset diversification is reduced when jumps occur often and are correlated. Results indicate the presence of jumps in all assets. The average correlation between the asset classes is -0.025, indicating that diversifying across asset classes reduces the jump risk to which an investor is exposed. The findings highlight the downside of assessing the advantages of diversification across asset classes solely on the basis of returns. While this can seem to be of little importance, diversification is likely to result in a substantial reduction in jump risk. An analysis of the domestic oil price surge, the gold ban as a payment vehicle under Government Resolution No: 11/NQ-CP, and the Covid-19 pandemic show the benefits of cross-asset diversification from a jump risk standpoint. According to the results, jump correlations do not always have a negative impact on diversification benefits. A return shift in one asset and a transition in the other asset in the same direction are common characteristics of co-jumps between assets.