Abstract
We investigate how individual equity prices respond to continuous and jumpy market price moves and how these different market price risks, or betas, are priced in the cross section of expected stock returns. Based on a novel high-frequency data set of almost 1,000 stocks over two decades, we find that the two rough betas associated with intraday discontinuous and overnight returns entail significant risk premiums, while the intraday continuous beta does not. These higher risk premiums for the discontinuous and overnight market betas remain significant after controlling for a long list of other firm characteristics and explanatory variables.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 464-490 |
| Number of pages | 27 |
| Journal | Journal of Financial Economics |
| Volume | 120 |
| Issue number | 3 |
| DOIs | |
| State | Published - Jun 1 2016 |
Funding
An earlier version of the paper by Tim Bollerslev and Sophia Zhengzi Li was circulated under the title “Roughing up the CAPM: Jump betas and the cross section of expected stock returns.” We are grateful to Bill Schwert (the editor), and an anonymous referee for numerous helpful suggestions, which greatly improved the paper. We would also like to thank Turan Bali, Jia Li, Andrew Patton, Mark Schroder, and George Tauchen, along with seminar participants at several universities, financial institutions, and conferences for their helpful comments. The research was partly funded by a grant from the National Science Foundation (SES-0957330) to the National Bureau of Economic Research. Bollerslev and Li also gratefully acknowledge support from CREATES funded by the Danish National Research Foundation (DNRF78) and the 2012 Morgan Stanley Prize for Excellence in Financial Markets, respectively.
Keywords
- Cross-sectional return variation
- High-frequency data
- Jump betas
- Market price risks
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
- Strategy and Management