Interpretable Systematic Risk around the Clock

Songrun He

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arXiv · 2604.13458

Interpretable Systematic Risk around the Clock

Songrun He

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Abstract

In this paper, I present the first comprehensive, around-the-clock analysis of systematic jump risk by combining high-frequency market data with contemporaneous news narratives identified as the underlying causes of market jumps. These narratives are retrieved and classified using a state-of-the-art open-source reasoning LLM. Decomposing market risk into interpretable jump categories reveals significant heterogeneity in risk premia, with macroeconomic news commanding the largest and most persistent premium. Leveraging this insight, I construct an annually rebalanced real-time Fama-MacBeth factor-mimicking portfolio that isolates the most strongly priced jump risk, achieving a high out-of-sample Sharpe ratio and delivering significant alphas relative to standard factor models. The results highlight the value of around-the-clock analysis and LLM-based narrative understanding for identifying and managing priced risks in real time.

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Songrun He. 2026-04-15. Interpretable Systematic Risk around the Clock. https://arxiv.org/abs/2604.13458

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