The Overnight Drift

98 Pages Posted: 2 Mar 2020 Last revised: 16 Aug 2022

See all articles by Nina Boyarchenko

Nina Boyarchenko

Federal Reserve Bank of New York

Lars Christian Larsen

Copenhagen Business School

Paul Whelan

Copenhagen Business School

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2020


This paper documents that U.S. equity returns are large and positive during the opening hours of European markets. These returns are pervasive, economically large, and highly statistically significant. Consistent with models of inventory risk, we demonstrate a strong relationship with order imbalances at the close of the preceding U.S. trading day. Rationalizing unconditionally positive “overnight drift” returns, we uncover an asymmetric reaction to demand shocks: market selloffs generate robust positive overnight reversals, while reversals following market rallies are much more modest. We argue that demand shock asymmetry can arise in inventory management models with time-varying dealer risk-bearing capacity.

Keywords: overnight returns, immediacy, inventory risk, volatility risk

JEL Classification: G13, G14, G15

Suggested Citation

Boyarchenko, Nina and Larsen, Lars Christian and Whelan, Paul, The Overnight Drift (February 1, 2020). FRB of New York Staff Report No. 917, February 2020, Rev. August 2022, Available at SSRN: or

Nina Boyarchenko (Contact Author)

Federal Reserve Bank of New York ( email )

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New York, NY 10045
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212-720-7339 (Phone)
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Lars Christian Larsen

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000

Paul Whelan

Copenhagen Business School ( email )

Copenhagen Business School
Finance Department
Copenhagen, DC 1854

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