Abstract
We study when overnight price discovery occurs by decomposing the close-to-open return into after-market, pre-market, and dark returns, where the dark return is measured from the last aftermarket trade to the first pre-market trade. Using one-minute trade data for S&P 500 stocks over October 2008 to December 2023, we show that on average, dark returns are positive while premarket returns are negative, offsetting a substantial share of dark returns. The reversal is strongest when pre-market liquidity is low. Cross-sectional explanatory power for close-to-open returns rises
smoothly through the pre-market, implying that overnight valuation changes are incorporated gradually before the regular-session open.
Keywords: overnight returns, close-to-open returns, pre-market trading, after-market trading, price discovery
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