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Roughing up beta: Continuous versus discontinuous betas and the cross section of expected stock returns

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  • Bollerslev, Tim
  • Li, Sophia Zhengzi
  • Todorov, Viktor

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.

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  • Bollerslev, Tim & Li, Sophia Zhengzi & Todorov, Viktor, 2016. "Roughing up beta: Continuous versus discontinuous betas and the cross section of expected stock returns," Journal of Financial Economics, Elsevier, vol. 120(3), pages 464-490.
    • Handle: RePEc:eee:jfinec:v:120:y:2016:i:3:p:464-490
    DOI: 10.1016/j.jfineco.2016.02.001
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    More about this item

    Keywords

    Market price risks; Jump betas; High-frequency data; Cross-sectional return variation;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • 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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