The Intraday Heterogeneity and Risk Pricing Reversal Between Day and Night: Evidence from China

Using a large panel of high-frequency trading data, this article investigates the intraday heterogeneity of risk pricing process in the Chinese stock market. Our research reveals that the financial assets in China exhibit intraday beta variation: high/low market risk level assets, with beta values above/below unity, tend to have downward/upward sloping beta trajectories across the intraday trading periods. We confirm a trend reversal of the risk-return relation between day and night in the Chinese market: the assets’ intraday returns are negatively correlated with their market risk level, whereas their overnight returns are positively correlated with their risk level. Further investigation shows a connection between the intraday beta variation and the day-night reversal anomaly, and the risk-return reversal between day and night can be partially explained by the intraday beta variation of financial assets. After controlling for the intraday beta variation, the risk-return reversal anomaly between day and night becomes less pronounced in the Chinese market.