The Pricing of Continuous and Discontinuous Factor Risks
Type
working paper
Date Issued
2023-12-28
Author(s)
Abstract
This study considers the Fama-French five-factor model in continuous time, allowing stocks' exposures to the factors' continuous, jump, and overnight movements to differ. Empirically, stocks' continuous, jump, and overnight betas on a given factor can be very different and are only weakly positively related. Contrary to existing evidence, I find continuous market exposure to be positively priced and overnight market exposure to be negatively priced. Moreover, overnight exposures to the size, value, profitability, and investment factors are positively priced, while continuous exposures to these factors are mostly negatively priced. Jump exposures are not consistently priced. I show that these pricing patterns likely arise to compensate investors for being exposed to a tug of war between institutional investors trading intraday and retail investors trading overnight. Finally, I document that the factors' overnight risk prices have predictive power for their future returns.
Language
English
Keywords
Fama-French factors
jump risk
overnight risk
intraday returns
overnight returns
investor clienteles JEL Classification: G12
HSG Classification
contribution to scientific community
Subject(s)
Division(s)
Contact Email Address
tobias.hemauer@unisg.ch
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open.access
Name
Paper_IApx.pdf
Size
749.98 KB
Format
Adobe PDF
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