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

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  • Michael A Kelly

    (Lafayette College)

  • Steven P Clark

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.

Suggested Citation

  • Michael A Kelly & Steven P Clark, 2011. "Returns in trading versus non-trading hours: The difference is day and night," Journal of Asset Management, Palgrave Macmillan, vol. 12(2), pages 132-145, June.
    • Handle: RePEc:pal:assmgt:v:12:y:2011:i:2:d:10.1057_jam.2011.2
    DOI: 10.1057/jam.2011.2
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    References listed on IDEAS

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