The overnight drift

Arbeitspapier

We show that nearly 100 percent of the U.S. equity premium is earned over a window around the opening hours of European markets when U.S. cash markets are closed. We explore two potential complementary explanations. First, consistent with predictions from dealer inventory risk models, we find (1) a strong negative link to end-of-day order imbalance; (2) reversals are amplified in periods of high volatility; and (3) in recent years dealers have increasingly offloaded inventory during Asian trading hours. Second, shocks to end-of-day quantities of risk lead to increases in overnight expected returns.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 917

Classification and Topics

• Classification: Wirtschaft ; Contingent Pricing; Futures Pricing; option pricing ; Information and Market Efficiency; Event Studies; Insider Trading ; International Financial Markets
• Subject: overnight returns ; immediacy ; inventory risk ; volatility risk

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Boyarchenko, Nina ; Larsen, Lars C. ; Whelan, Paul
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/241110
• Last update: 10.03.2025, 11:42 AM CET