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Overnight Return Momentum: Evidence from European Markets

Arik Ben Dor and Xiaming Zeng
The Journal of Portfolio Management Non-US Financial Markets 2021, jpm.2021.1.247; DOI: https://doi.org/10.3905/jpm.2021.1.247
Arik Ben Dor
is a managing director and head of quantitative equity research at Barclays in New York, NY
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Xiaming Zeng
is a vice president in the Quantitative Portfolio Strategy Group at Barclays in London, UK
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Abstract

The increased role played by passive equity investors is associated with significant changes in intraday trading patterns. The authors study the dynamics of stock index returns in major European markets during the last 30 minutes before market close and show that they can be predicted by overnight returns. An intraday market-timing strategy the authors formulated to exploit this dynamic delivered sizable economic gains across all markets since 2000. The strategy performance is evident across different subsamples and market conditions, is robust to various implementation assumptions and transaction costs, and cannot be explained by calendar effects or other risk factors.

TOPICS: Security analysis and valuation, exchange-traded funds and applications, developed markets, performance measurement

Key Findings

  • ▪ The last half-hour of stock returns in several major European markets can be predicted by overnight returns at the market level.

  • ▪ Intraday market-timing strategies based on overnight returns have delivered sizable economic gains across European countries relative to benchmarks since 2000.

  • ▪ Strategy performance is present after transaction costs and across different subsamples and market conditions, is robust to alternative implementation assumptions, and cannot be explained by calendar effects or other risk factors.

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The Journal of Portfolio Management: 48 (5)
The Journal of Portfolio Management
Vol. 48, Issue 5
April 2022
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Overnight Return Momentum: Evidence from European Markets
Arik Ben Dor, Xiaming Zeng
The Journal of Portfolio Management May 2021, jpm.2021.1.247; DOI: 10.3905/jpm.2021.1.247

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Overnight Return Momentum: Evidence from European Markets
Arik Ben Dor, Xiaming Zeng
The Journal of Portfolio Management May 2021, jpm.2021.1.247; DOI: 10.3905/jpm.2021.1.247
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  • Article
    • Abstract
    • DATA
    • A FIRST LOOK AT OVERNIGHT RETURN PREDICTABILITY
    • OVERNIGHT RETURN MOMENTUM: NONLINEAR PREDICTABILITY
    • ROBUSTNESS TESTS
    • CONCLUSION
    • ENDNOTES
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