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Statistical analysis of the overnight and daytime return
Fengzhong Wang1, Shwu-Jane Shieh, Shlomo Havlin
1Department of Physics and Center for Polymer Studies, Boston University, Boston, Massachusetts 02215, USA.
Summary
This study analyzed overnight and daytime stock returns and volatilities for NYSE stocks. Daytime returns significantly contribute to total returns, exhibiting stronger correlations and volatility patterns similar to overall market behavior.
Area of Science:
- Quantitative Finance
- Market Microstructure
- Financial Econometrics
Background:
- Total daily stock returns are composed of overnight and daytime components.
- Understanding the distinct characteristics of these components is crucial for financial market analysis.
Purpose of the Study:
- To analyze the properties of overnight and daytime stock returns and volatilities.
- To compare these properties with total daily returns and volatilities.
- To investigate long-term memory and cross-correlations within these return series.
Main Methods:
- Analysis of close-to-close, close-to-open, and open-to-close returns for 2215 NYSE stocks.
- Examination of volatility tail distributions, long-term memory, and cross-correlations.
- Data spanning a 20-year period (1988-2007).
Main Results:
- Component returns and volatilities share similarities with total returns/volatilities, with power-law tails in volatility.
- Long-term correlations are present in volatility but not return sequences.
- Daytime returns contribute more to total returns, with daytime volatility mirroring total volatility characteristics.
Conclusions:
- Daytime stock market activity is a dominant driver of overall daily returns and volatility patterns.
- Overnight and daytime returns exhibit anti-correlation, a stable feature over time.
- Volatility sequences display long-term memory, unlike return sequences.
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