IDEAS home Printed from https://ideas.repec.org/p/bcb/wpaper/644.html

Is The Risk of The Opening Price Gap Priced?

Author

Listed:
  • Gustavo Silva Araujo
  • Claudio Henrique da Silveira Barbedo
  • Hugo Araujo Costa
  • Aziz Baruque

Abstract

The objective of this work is to analyze whether the risk of differences between the closing price and the opening price of the subsequent day, the opening price gap rate, is priced in the Brazilian stock market. This inquiry stems from the recognition that an investor is impacted by the volatility of these gaps. Long and Short strategies are simulated, entailing long positions in stocks with higher overnight volatility and short positions on those with lower overnight volatility. The one-year volatility of daily gap returns is utilized to define the portfolio for the subsequent year, and to categorize the strategy into long and short positions. The results reveal that the strategy generates positive abnormal returns across all models (CAPM, Fama-French Three Factor Model and Fama-French Extended Model), indicating that the gap risk is not priced in the Brazilian market. The strategy yields an annualized abnormal return exceeding 13%.

Suggested Citation

  • Gustavo Silva Araujo & Claudio Henrique da Silveira Barbedo & Hugo Araujo Costa & Aziz Baruque, 2026. "Is The Risk of The Opening Price Gap Priced?," Working Papers Series 644, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:644
    as

    Download full text from publisher

    File URL: https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/WP644.pdf
    Download Restriction: no
    ---><---

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bcb:wpaper:644. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Rodrigo Barbone Gonzalez (email available below). General contact details of provider: https://www.bcb.gov.br/en .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.