Abstract
This paper documents large positive returns to holding U.S. equity futures overnight during the opening hours of European markets. These returns are not explained by liquidity risk, volatility risk, tail events, or overnight news. Instead, consistent with models of inventory risk and demand for immediacy, we demonstrate a strong relationship with market sell-offs from the previous intraday session. Moreover, price reversals are strongest at the opening of European markets, when overnight trading volumes peak. Finally, the timing of overnight returns shifts predictably in response to exogenous variation in the arrival time of Asian investors due to daylight savings time asynchronicities.
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