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Price Gaps and Volatility: Do Weekend Gaps Tend to Close?

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  • Marnus Janse van Rensburg

    (Institute for Intelligent Systems, University of Johannesburg, Johannesburg 2006, South Africa)

  • Terence Van Zyl

    (Institute for Intelligent Systems, University of Johannesburg, Johannesburg 2006, South Africa)

Abstract

This study investigates weekend price gaps in three major stock market indices—the Dow Jones Industrial Average (DJIA), NASDAQ, and Germany’s DAX—from 2013 to 2023, using high-frequency (5 min) data to explore whether gap movements arise from random volatility or reflect systematic market tendencies. We examine 205 weekend gaps in the DJIA, 270 in NASDAQ, and 406 in the DAX. Two principal hypotheses guide our inquiry as follows: ( i ) whether price movements into the gap are primarily driven by increased volatility and ( ii ) whether larger gaps are associated with heightened volatility. Employing Chi-square tests for the independence and linear regression analyses, our results show no strong, universal bias towards closing gaps at shorter distances across all three indices. However, at medium-to-large distances, significant directional patterns emerge, particularly in the DAX. This outcome challenges the assumption that weekend gaps necessarily “fill” soon after they open. Moreover, larger gap sizes correlate with elevated volatility in both the DJIA and NASDAQ, underscoring that gaps can serve as leading indicators of near-term price fluctuations. These findings suggest that gap-based anomalies vary by market structure and geography, raising critical questions about the universality of efficient market principles and offering practical insights for risk management and gap-oriented trading strategies.

Suggested Citation

  • Marnus Janse van Rensburg & Terence Van Zyl, 2025. "Price Gaps and Volatility: Do Weekend Gaps Tend to Close?," JRFM, MDPI, vol. 18(3), pages 1-24, March.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:3:p:132-:d:1604237
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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