Market Return Around the Clock: A Puzzle

72 Pages Posted: 27 May 2020 Last revised: 11 Sep 2020

See all articles by Oleg Bondarenko

Oleg Bondarenko

University of Illinois at Chicago - Department of Finance

Dmitriy Muravyev

Michigan State University - Department of Finance

Date Written: April 28, 2020

Abstract

We study how the excess market return depends on the time of the day using E-mini S&P 500 futures that are actively traded for almost 24 hours. Strikingly, four hours around European open account for the entire average market return. This period’s returns are consistently positive in every year, have an extra-high Sharpe ratio, and exceed transaction costs. Average returns are close to zero during the remaining 20 hours. High returns around European open are consistent with European investors processing overnight information and thus resolving uncertainty. Indeed, uncertainty reflected by VIX futures prices increases overnight and plummets around European open. These results shed light on how equity premium is formed at the micro-level.

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

JEL Classification: G12, G13, G14

Suggested Citation

Bondarenko, Oleg and Muravyev, Dmitriy, Market Return Around the Clock: A Puzzle (April 28, 2020). Available at SSRN: https://ssrn.com/abstract=3596245 or http://dx.doi.org/10.2139/ssrn.3596245

Oleg Bondarenko

University of Illinois at Chicago - Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States
(312) 996-2362 (Phone)
(312) 413-7948 (Fax)

Dmitriy Muravyev (Contact Author)

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

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