The Economic Value of Conditioning on Overnight Information

Posted: 12 Mar 2005

Date Written: August 11, 2006


This paper provides a comprehensive economic and statistical evaluation of the predictive ability of information accumulated during nontrading hours for a set of European and US indexes. We introduce a stochastic volatility model, which conditions on lagged overnight information and distinguishes between the nontrading periods of weeknights, weekends, holidays and long weekends. Furthermore, Bayesian methods are implemented for estimation and ranking of the empirical models. More importantly, we assess the economic value of conditioning on overnight information, and find two key results: (i) a risk averse investor will pay a high performance fee to switch from a dynamic portfolio strategy which does not account for the impact of overnight information on daytime conditional expected returns and volatility to a strategy which does; and (ii) the economic value of conditioning on overnight information is high in both European and US markets, and is particularly high for stock exchanges where the opening call auction is conducted by a specialist with a price continuity obligation. These two results are robust to reasonably high transaction costs.

Keywords: Overnight Information, Economic Value, Opening Call Auction, Stochastic Volatility, Bayesian MCMC Estimation

JEL Classification: C53, G11, G14, G15.

Suggested Citation

Tsiakas, Ilias, The Economic Value of Conditioning on Overnight Information (August 11, 2006). Available at SSRN: or

Ilias Tsiakas (Contact Author)

University of Guelph ( email )

Department of Economics and Finance
University of Guelph
Guelph, Ontario N1G 2W1
5198244120 ext 53054 (Phone)
5197638497 (Fax)


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