IS THE RISK OF THE OPENING PRICE GAP PRICED?

Gustavo Araujo, Claudio Henrique Barbedo, Hugo Araújo Costa and Aziz Baruque

Revista Brasileira de Economia - RBE, 2026, vol. 80, issue 1

Abstract: This study investigates whether the risk associated with the opening price gap rate, defined as the difference between a stock’s closing price and its subsequent opening price, is priced in the Brazilian equity market. Recognizing that investors are directly affected by the volatility of these gaps, we simulate long–short strategies using stocks sorted by overnight volatility. Empirical results demonstrate that such strategies consistently yield positive abnormal returns across all conventional asset pricing models. These findings suggest that gap risk is not incorporated into asset prices in the Brazilian market, highlighting an inefficiency that may be exploited by investors.

Date: 2026
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Working Paper: Is The Risk of The Opening Price Gap Priced? (2026)
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