Overnight and Daytime Stock Return Dynamics on the London Stock Exchange

Abstract:     
We explore the time series properties of overnight and daytime returns on the London Stock Exchange's primary stock market index, the FTSE-100 on the over the 1984-1991 period. We use a modified GARCH model to specify daytime and overnight return dynamics where (a) intra-day returns can have different impacts and persistence on stock return volatility, (b) return effects on volatility can be asymmetric and (c) intra-day returns can follow conditional distributions with different fourth moments. We uncover important changes in return dynamics and conditional fourth moments following the stock exchange's major restructuring called "Big Bang", which merged broker and dealer functions and after the1987 stock market crash.

Keywords: Stock Return Dynamics, London Stock Exchange, GARCH, Exchange Restructuring, Big Bang, Stock Market Crash

JEL Classifications: G12, G14, C22, L11

Accepted Paper Series