Market Return Around the Clock: A Puzzle

Abstract

We study how the excess market return depends on the time of the day using E-mini S&P 500 futures actively traded for almost 24 hours. Strikingly, four hours around European open account for the entire average market return. This period’s returns are positive every year and have a 1.6 Sharpe ratio that remains high after costs. Average returns are a noisy zero during the remaining 20 hours. High returns around European open are consistent with European investors processing information accumulated overnight and thus resolving uncertainty. Indeed, uncertainty reflected by VIX futures prices rises overnight and falls around European open. The results are stronger during the 2020 COVID crisis.

Keywords: Market return, intraday data, uncertainty resolution, index futures

JEL Classification: G12, G13, G14