Why Beta Relates Differently to Intraday and Overnight Stock Returns

Summary

This research summary revisits the capital asset pricing model by splitting daily stock returns into open-to-close intraday returns and close-to-open overnight returns. It reports that, in the US sample, beta is negatively related to intraday returns but positively related to overnight returns. This contrasts with the weak relationship described for conventional close-to-close returns and produces distinct security market lines for the two periods.

The summary says the findings remain after controls for industry, size, and external news shocks, and that similar patterns were found in European and Asian markets. It also discusses limitations and possible explanations: beta estimation uses overnight returns, and an observed overnight interval may cover more than one night. Differences in intraday and overnight risk-free rates and opposite-sign Treasury futures returns are offered as possible reasons for the conventional CAPM’s weak performance. The source is a summary of a paper; it provides no detailed sample statistics or numerical estimates.

Key ideas

• The analysis separates stock returns into intraday and overnight components.
• It reports a negative beta relationship for intraday returns and a positive one for overnight returns.
• The reported patterns persist after controls for industry, size, and news shocks.
• Similar findings are described for European and Asian markets.
• The summary notes beta measurement concerns and offers time-varying risk-free rates as a possible explanation.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.