This article presents a pure exchange economy that extends Rubinstein (1976) to show how the jump–diffusion option pricing model of Merton (1976) is altered when jumps are correlated with diffusive risks. A non-zero correlation between jumps and diffusive risks is necessary in order to resolve the positively sloped implied volatility term structure inherent in traditional jump diffusion models. Our evidence is consistent with a negative covariance, producing a non-monotonic term structure. For the proposed market structure, we present a closed form asset pricing model that depends on the factors of the traditional jump–diffusion models, and on both the covariance of the diffusive pricing kernel with price jumps and the covariance of the jumps of the pricing kernel with the diffusive price. We present statistical evidence that these covariances are positive. For our model the expected stock return, jump and diffusive risk premiums are non-linear functions of time.

Digitalization is a crucial strategy for firms to gain a competitive advantage. This study utilizes data from Chinese listed firms from 2011 to 2020 to examine how digitalization affects firms' stock price informativeness. Empirical results demonstrate that digitalization reduces stock price synchronicity and promotes firms' stock price informativeness. Moreover, digitalization improves stock price informativeness by enhancing investment efficiency and firm value, reducing information asymmetry, and alleviating agency costs. These findings suggest that effective digital strategies and capabilities constitute an important yet underappreciated resource that enables firms to generate value-relevant information and improve the information environment in emerging capital markets. Our study contributes new evidence on the financial market implications of digital transformation from a resource-based view perspective.