The Overnight Drift

Nina Boyarchenko, Lars C. Larsen, Paul Whelan

Research output: Contribution to conferencePaperResearchpeer-review


Since the advent of electronic trading in the mid 1990’s, U.S. equities have traded (almost) 24 hours a day through equity index futures. This allows new information to be incorporated continuously into asset prices, yet, we show that almost 100% of the U.S equity premium is earned during a 1-hour window between 2:00am and 3:00am (EST) which we dub the ‘overnight drift’. We study explanations for this finding within a framework a la Grossman and Miller (1988) and derive testable predictions linking dealer inventory shocks to high- frequency return predictability. Consistent with the predictions of the model, we document a strong negative relationship between end of day order imbalance, arising from market sell offs, and the overnight drift occurring at the opening of European financial markets. Further, we show that in recent years dealers have increasingly offloaded inventory shocks at the opening of Asian markets and exploit a natural experiment based on daylight savings time to show that Asian offloading shifts by one hour between summer and winter.
Original languageEnglish
Publication date2020
Number of pages53
Publication statusPublished - 2020
EventThe 47th European Finance Association Annual Meeting. EFA 2020 - Virtual from The Aalto University School of Business, Helsinki, Finland
Duration: 20 Aug 202021 Aug 2020
Conference number: 47


ConferenceThe 47th European Finance Association Annual Meeting. EFA 2020
LocationVirtual from The Aalto University School of Business
Internet address


  • Overnight returns
  • Immediacy
  • Inventory risk
  • Volatility risk

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