The Overnight Drift

66 Pages Posted: 25 Mar 2020

See all articles by Nina Boyarchenko

Nina Boyarchenko

Federal Reserve Bank of New York

Lars Christian Larsen

Copenhagen Business School

Paul Whelan

The Chinese University of Hong Kong

Multiple version iconThere are 2 versions of this paper

Date Written: March 2020


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 2:00 a.m. and 3:00 a.m. (ET) 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.

Keywords: Equity Risk, Intraday Immediacy, Inventory management, Overnight Returns

JEL Classification: G13, G14, G15

Suggested Citation

Boyarchenko, Nina and Larsen, Lars Christian and Whelan, Paul, The Overnight Drift (March 2020). CEPR Discussion Paper No. DP14462, Available at SSRN:

Nina Boyarchenko (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-7339 (Phone)
212-720-1582 (Fax)

Lars Christian Larsen

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000

Paul Whelan

The Chinese University of Hong Kong ( email )

The Chinese University of Hong Kong
Finance Department
Copenhagen, DC 1854
Hong Kong

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