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Weekly Seasonality in Overnight Effects of the Stock Market

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  • WAN JIA Lin

Abstract

This paper provides a comprehensive study of the weekly seasonality of the overnight effect in US large-cap stocks and index exchange-traded funds (ETFs). We identify a distinct pattern- a statistically significant positive Monday-to-Tuesday and negative Friday-to-next-Monday overnight (close to next open) return in large-cap US equities and index ETFs. We find overnight effect exhibits statistically significant patterns depending on the day of the week. This paper focuses on the weekly seasonality of this effect, exploring how the overnight return patterns vary across the weekdays. A short-term trading model is built to buy these stocks and ETFs before the market close and sell at the opening of the next trading day, and skips Wednesday and/or Friday. This model outperforms the market in both bull and bear conditions with higher Sharpe ratio.

Suggested Citation

  • WAN JIA Lin, 2025. "Weekly Seasonality in Overnight Effects of the Stock Market," Applied Economics and Finance, Redfame publishing, vol. 12(3), pages 30-46, August.
    • Handle: RePEc:rfa:aefjnl:v:12:y:2025:i:3:p:30-46
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    References listed on IDEAS

    as
    1. Tianyi Wang & Sicong Cheng & Fangsheng Yin & Mei Yu, 2022. "Overnight volatility, realized volatility, and option pricing," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(7), pages 1264-1283, July.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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