Uncertainty shocks and the daytime beta anomaly

Hendershott, Livdan, and Rösch (2020) document that stock returns exhibit a positive relationship with beta overnight, whereas the beta – return association turns negative during daytime trading. This study extends their findings by demonstrating that the negative daytime beta – return relationship reverses following large positive market-wide uncertainty shocks. By categorizing trading days based on the top decile of prior-day VIX index changes, we find that a one-unit increase in beta leads to a statistically and economically significant 59.02% rise in annualized average daytime returns during high uncertainty shock periods, contrasting with a 36.74% decline on normal trading days. These findings highlight the critical role of information flow and investor attention in shaping systematic risk pricing and provide novel insights into the conditions that restore the CAPM’s predictive power during trading hours.