Staff Reports
The Overnight Drift
Number 917
February 2020 Revised February 2021

JEL classification: G13, G14, G15

Authors: Nina Boyarchenko, Lars C. Larsen, and Paul Whelan

This paper documents large positive returns to holding U.S. equity futures overnight during the opening hours of European markets. These returns are not explained by liquidity risk, volatility risk, tail events, or overnight news. Instead, consistent with models of inventory risk and demand for immediacy, we demonstrate a strong relationship with market sell-offs from the previous intraday session. Moreover, price reversals are strongest at the opening of European markets, when overnight trading volumes peak. Finally, the timing of overnight returns shifts predictably in response to exogenous variation in the arrival time of Asian investors due to daylight savings time asynchronicities.

Available only in PDF
AUTHOR DISCLOSURE STATEMENT(S)
Nina Boyarchenko
The author declares that she has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Lars C. Larsen
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Paul Whelan
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement.   Close