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
Date Written: April 12, 2016
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: Suggested Citation