Continuous Beta Versus Discontinuous Beta And Stock Risk Premium

It's a common phenomenon that assets price in the financial market exhibits jumps.Given that jumps bring more risks to the investors,research on the jumping behavior of assets price will become crucial and have certain practical significance.In view of the common phenomenon of numerous stocks dropping at a time on the stock market,we think it's possible that there is systematic jump risk.Based on this,this paper will test the risk of systemic jump in Chinese stock market,then decompose and estimate the systematic risk,for in-depth study of various types of risk premiums in Chinese stock market.Our empirical investigation relies on the 5-minute high-frequency data of CSI 300 Index and its constituent stocks.Firstly,we detect the asset prices jumps in Chinese stock market.It finds that jumps occur in the stock index and individual stocks.And there is systematic jumps in the stock market.Therefore,in order to measure the systematic risk in the market more accurately,we decompose the systematic risk and then estimate the continuous beta,discontinuous beta(jump beta and overnight beta),measuring the sensitivity of stock price to the market continuous movements and discontinuous movements(jumps and overnight movements),respectively.Taking into account the asymmetry of volatility in the positive and negative market,based on previous studies,we further decompose jump beta into positive jump beta and negative jump beta.Empirical study suggests individual stocks price are more sensitive to discontinuous movements(jumps and overnight movements)than continuous changes.In addition,compared with the market positive jump,investors respond more strongly to negative jumps,in line with the risk aversion of investors.The relationship between risk and return is one of the core issues in the theory of finance.Therefore,this article also uses continuous beta and discontinuous beta(negative jump beta,positive jump beta and overnight beta)as the systematic risk measure to study risk premium in Chinese stock market.The empirical results show that both jump risk premium and overnight risk premium are significantly positive while the systematic continuous risk is not priced.Among them,the systematic jump risk premium mainly comes from the systemic negative jump risk compensation,but the positive jump risk has no significant effect on stock cross-sectional return.