On the pricing of overnight market risk
Abstract
This paper addresses the relation between market risk and expected market returns under periodic trading breaks. We propose a model where asset prices are driven by a diffusive process that operates during the trading day and a separate process that captures overnight price changes. Our empirical analysis shows that both components are important in explaining the equity market risk premium. Trading breaks entail a lack of market functionality...
Paper Details
Title
On the pricing of overnight market risk
Published Date
May 18, 2019
Journal
Volume
59
Issue
3
Pages
1307 - 1327
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