Decomposition of Returns by Hour

Where  do stocks make their greatest moves?

For the SPY ETF, it is the overnight session (closing times + extended hours).

Here we look at the SPY ETF and decompose the movements into overnight and intraday by the hour.

Hour 9 captures the  overnight gap, while hour 10 is captures the price change from 0900 to 1000 local exchange time. Hour 16 captures the action in the last hour of trading from 1500-1600.

Table 1 - Cumulative points gained by the SPY and the contribution of points by the hour

05 May 2008 to 31 Dec 2019

Date 9 10 11 12 13 14 15 16 Total
31 Dec 2019 117.4739 22.9358 -4.3967 8.6097 15.5789 -3.2806 19.6799 4.1291 180.73

Two thirds of the gains from May 2008 are from the extended session + overnight moves! This means that if you pursued a strategy of simply buying at the close and then exiting at the next day's open, you would have captured the majority of the price returns for this whole bull run.


Table 2 - Statistical description of percent changes in each segment

Values in % terms i.e. 0.0171 means 0.0171% not 1.71%, normalized by their price at the top of the hour

The largest changes are seen in the overnight gaps - 9.2% and +10.1% and the hour with the least variation in percent returns is the 1200-1300 time period.

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