Investigating the Sources of Day and Night Returns

62 Pages Posted: 11 Feb 2021 Last revised: 10 Mar 2021

See all articles by Austin Hill-Kleespie

Austin Hill-Kleespie

G. Brint Ryan College of Business, University of North Texas

Date Written: November 11, 2020

Abstract

Recent research has shown that the premiums of many popular factors are earned at different times of the day. I examine how time of day affects the performance of the Fama and French (1996) and Fama and French (2015) factor models. I find that factor models composed of nighttime returns perform significantly better in explaining average portfolio returns but models using exclusively daytime returns better explain total portfolio variance. In investigating this further I find that daytime returns are sensitive to changes in investor sentiment whereas overnight returns are dependent on macroeconomic conditions largely consistent with Daniel, Hirshleifer, and Subrahmanyam (2001). Additionally, as predicted by the theoretical literature, I find that an increase in personal consumption substantially decreases returns occurring during the daytime when investors are most active.

Keywords: Factor Models, Market Efficiency, Risk, Mispricing, Overnight Returns, Daytime Returns

Suggested Citation

Hill-Kleespie, Austin, Investigating the Sources of Day and Night Returns (November 11, 2020). Available at SSRN: https://ssrn.com/abstract=3728858 or http://dx.doi.org/10.2139/ssrn.3728858

Austin Hill-Kleespie (Contact Author)

G. Brint Ryan College of Business, University of North Texas

Denton, TX 76203
United States

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