The Dynamics of Daily, Intraday and Overnight Betas

Abstract

We investigate on the dynamics of intraday and overnight systematic risk through beta estimation. In order to understand if beta shows a different behavior overnight, we divide the total daily return into intraday and overnight return and evaluate daily, intraday and overnight betas. We estimate our betas starting from the Capital Asset Pricing Model (CAPM) assuming a constant systematic risk. Afterwards, we consider a non-parametric method for timevarying conditional betas that was proposed by Ang and Kristensen (2012) and Li and Yang (2011). We conduct our analysis on the universe of US stocks, evaluating our three kinds of beta considering single stocks and also aggregating them into portfolios by market capitalization. Empirical evidence shows substantial differences between intraday and overnight betas. In particular we find higher values for intraday betas that imply an higher intraday systematic risk.

Keywords: CAPM, Beta, Time-Varying Beta, Beta Intraday, Beta Overnight, Non-Parametric Methods

JEL Classification: C14, C58, G11, G12