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Does systematic risk change when markets close? An analysis using stocks’ beta

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  • Insana, Alessandra

Abstract

Investors' behavior and news or events occurring during the market closure affect open price variation. For these reasons, daytime and overnight returns and volatilities move differently. In light of these effects, it is natural to ask whether systematic risk varies between trading and non-trading periods. We answer this question by evaluating the US stocks’ beta from 1992 to 2020. Computing daily, daytime, and overnight betas using a proper market index for each trading period, we show how market risk varies over time and is influenced by market shocks. We observe a high overnight risk concentrated within small and large stocks. We find that daytime systematic risk is generally higher, especially between 2001 and 2019. Furthermore, we show how the outbreak of the Covid-19 pandemic led to an increase in overnight risk implying that US stocks became more sensitive to the market closure.

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  • Insana, Alessandra, 2022. "Does systematic risk change when markets close? An analysis using stocks’ beta," Economic Modelling, Elsevier, vol. 109(C).
    • Handle: RePEc:eee:ecmode:v:109:y:2022:i:c:s0264999322000281
    DOI: 10.1016/j.econmod.2022.105782
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    1. Insana, Alessandra, 2023. "Betting against beta with intraday and overnight signals," International Review of Financial Analysis, Elsevier, vol. 86(C).

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    More about this item

    Keywords

    CAPM; Conditional CAPM; Time-varying beta; Daytime beta; Overnight beta; Nonparametric method;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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