Discussion Paper
The Disappearing Overnight Drift
Abstract: In a 2021 Liberty Street Economics post, we documented the “overnight drift”—a large, persistent return to holding U.S. equity futures in the narrow window between 2:00 and 3:00 a.m. Eastern time, when European equity markets open. Five additional years of data later, that pattern appears to have faded: the 2:00–3:00 window that previously generated roughly 3.7 percent per annum has averaged close to zero since 2021. In this post, we revisit the overnight drift in light of the post-publication sample and use our inventory-risk framework to ask which of three observable channels—the dispersion of closing order imbalances, the level of return variance, or the risk-bearing capacity of liquidity providers—accounts for the change.
https://doi.org/10.59576/lse.20260701
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https://libertystreeteconomics.newyorkfed.org/2026/07/the-disappearing-overnight-drift/
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Bibliographic Information
Provider: Federal Reserve Bank of New York
Part of Series: Liberty Street Economics
Publication Date: 2026-07-01
Number: 20260701