Statistical analysis of the overnight and daytime return

Abstract

We investigate the two components of the total daily return (close-to-close), the overnight return (close-to-open), and the daytime return (open-to-close), as well as the corresponding volatilities of the 2215 New York Stock Exchange stocks for the 20 year period from 1988 to 2007. The tail distribution of the volatility, the long-term memory in the sequence, and the cross correlation between different returns are analyzed. Our results suggest that (i) the two component returns and volatilities have features similar to that of the total return and volatility. The tail distribution follows a power law for all volatilities, and long-term correlations exist in the volatility sequences but not in the return sequences. (ii) The daytime return contributes more to the total return. Both the tail distribution and the long-term memory of the daytime volatility are more similar to that of the total volatility, compared to the overnight records. In addition, the cross correlation between the daytime return and the total return is also stronger. (iii) The two component returns tend to be anticorrelated. Moreover, we find that the cross correlations between the three different returns (total, overnight, and daytime) are quite stable over the entire 20 year period.