Asset Pricing: A Tale of Night and Day

Hendershott, Terrence; Livdan, Dmitry; Rösch, Dominik

doi:10.2139/ssrn.3117663

Cited by 13 publications

(14 citation statements)

References 24 publications

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“…Betting against beta cannot explain the findings of this paper for at least two reasons: First, as shown in the previous section (see Figure 9), the cross section of intraday declines following overnight market declines are better defined with idiosyncratic volatility, compared to beta. Second, in the other days, that is, following overnight surges, intraday returns tend to increase with beta, which does not match the pattern observed by Hendershott, Livdan, and Rösch (2018). They document average intraday returns, that are decreasing in beta.…”

Section: Betting Against Betamentioning

confidence: 73%

“…Although the focus of Hendershott, Livdan, and Rösch (2018) is essentially different from that of this paper, and they do not document declines and reversals that mainly occur following overnight market declines, one can try evaluating betting against beta as an alternative explanation for the findings of this paper.…”

Section: Betting Against Betamentioning

confidence: 83%

“…First, it contributes to an emerging literature that aims to understand the link between intraday and overnight returns. Lou, Polk, and Skouras (2018) document that momentum strategy is mainly profitable in the overnight period, and Hendershott, Livdan, and Rösch (2018) document that market beta is mainly priced overnight. This paper puts forward deteriorating market liquidity following tighter funding liquidity constraints to explain the way intraday and overnight returns interact.…”

Section: Introductionmentioning

confidence: 99%

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Cycles of Declines and Reversals following Overnight Market Declines

Abdi

2018

SSRN Journal

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This paper uncovers and explains the emergence of cycles of intraday declines and overnight reversals in the U.S. stock market in the 21st century. Using quote midpoints for the past 24 years of common stocks traded in the three main exchanges, I show that the cross-sectional association between average intraday and overnight returns has steadily shifted from a direct association into a strong inverse association over the years. I explain this shift by showing that after 2001, consistent with theoretical models in which binding capital constraints lead to liquidity dry-ups, an overnight decline in the stock market is followed by a further intraday decline for volatile stocks and their reversal over the next overnight period. Moreover, I show that market liquidity of volatile stocks further deteriorates following an overnight market decline, which confirms my proposed explanation. Finally, I show that idiosyncratic volatility, compared with systematic risk, better explains the cross section of the documented systematic intraday declines and overnight reversals.

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Section: Betting Against Betamentioning

confidence: 73%

Section: Betting Against Betamentioning

confidence: 83%

Section: Introductionmentioning

confidence: 99%

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Cycles of Declines and Reversals following Overnight Market Declines

Abdi

2018

SSRN Journal

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“…Our paper contributes to a literature that distinguishes price movements during trading hours from those when markets are closed (e.g., Cliff et al 2008; Barclay and Hendershott 2008;Hendershott et al 2018;see also French and Roll 1986). Our modification highlights the importance of time-matched price movement and trading volume inputs for Amihud's liquidity measure.…”

Section: Introductionmentioning

confidence: 81%

The Night and Day of Amihud's (2002) Liquidity Measure

et al. 2019

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“…Some authors also included macroeconomic factors [14], or human capital [15], or growth in consumption [8].This model has the following basic formula:…”

Section: Beta and Leveragementioning

confidence: 99%

How leverage can improve performance

Kmeťko

Hyránek

2020

SHS Web Conf.

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One of the best-known Capital Asset Pricing Model (CAP/M) provides us with a methodology for measuring the relationship between the risk premium and the impact of leverage on expected returns. However, this model is not used only to value the cost of capital but also to evaluate the performance of managed portfolios. We will test how the expected return changes in percent by changing the debt-equity ratio and the tax rate based on following assumptions: market return 7%, risk-free rate of return 1% and beta 1.2. These assumptions will be constant and we will change the debt-equity ratio and tax rate. Based on these results, it is clear that the change in profitability varies, in relation to the change of the DE ratio by one tenth. As for changes I n tax rates, changes in expected profitability are not entirely in direct proportion to these changes.

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Asset Pricing: A Tale of Night and Day

Cited by 13 publications

References 24 publications

Cycles of Declines and Reversals following Overnight Market Declines

Cycles of Declines and Reversals following Overnight Market Declines

The Night and Day of Amihud's (2002) Liquidity Measure

How leverage can improve performance

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