Returns in trading versus non-trading hours: The difference is day and night

Michael Kelly and Steven P Clark

Journal of Asset Management, 2011, vol. 12, issue 2, No 5, 132-145

Abstract: Abstract Market efficiency implies that the risk-adjusted returns from holding stocks during regular trading hours should be indistinguishable from the risk-adjusted returns from holding stocks outside those hours. We find evidence to the contrary. We use broad-based index exchange-traded funds for our analysis and the Sharpe ratio to compare returns. The magnitude of this effect is startling. For example, the geometric average close-to-open (CO) risk premium (return minus the risk-free rate) of the QQQQ from 1999–2006 was +23.7 per cent whereas the average open-to-close risk premium was −23.3 per cent with lower volatility for the CO risk premium. This result has broad implications for when investors should buy and sell broadly diversified portfolios.

Keywords: anomaly; efficiency; ETF; Sharpe ratio (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (32)

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DOI: 10.1057/jam.2011.2

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