Roughing up Beta: Continuous versus Discontinuous Betas and the Cross Section of Expected Stock Returns

65 Pages Posted: 6 Dec 2014 Last revised: 24 Apr 2016

See all articles by Tim Bollerslev

Tim Bollerslev

Duke University - Finance; Duke University - Department of Economics; National Bureau of Economic Research (NBER)

Sophia Zhengzi Li

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Viktor Todorov

Northwestern University

Date Written: April 12, 2016

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 one thousand 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.

Keywords: Market price risks; jump betas; high-frequency data; cross-sectional return variation

JEL Classification: C13, C14, G11, G12

Suggested Citation

Bollerslev, Tim and Li, Sophia Zhengzi and Todorov, Viktor, Roughing up Beta: Continuous versus Discontinuous Betas and the Cross Section of Expected Stock Returns (April 12, 2016). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2534007 or http://dx.doi.org/10.2139/ssrn.2534007

Tim Bollerslev (Contact Author)

Duke University - Finance ( email )

Durham, NC 27708-0120
United States
919-660-1846 (Phone)
919-684-8974 (Fax)

Duke University - Department of Economics

213 Social Sciences Building
Box 90097
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National Bureau of Economic Research (NBER)

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Sophia Zhengzi Li

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

100 Rockafeller Rd
Piscataway, NJ 08854
United States

Viktor Todorov

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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