This paper investigates the intertemporal relation between expected aggregate stock market returns and conditional variance considering periodic trading breaks. We propose a modified version of Merton’s intertemporal asset pricing model that merges two different processes driving asset prices, (i) a continuous process modeling diffusive risk during the trading day and, (ii) a discontinuous process modeling overnight price changes of random magnitude. Relying on high-frequency data, we estimate distinct premia for diffusive trading volatility and volatility induced by overnight jumps. While diffusive trading volatility plays a minor role in explaining the expected market risk premium, overnight jumps carry a significant risk premium and establish a positive risk-return trade-off. Our study thereby contributes to the ongoing debate on the sign of the intertemporal risk-return relation.