This paper documents that U.S. equity returns are large and positive during the opening hours of European markets. These returns are pervasive and highly economically and statistically significant. Consistent with models of inventory risk, we demonstrate a strong relationship with order imbalances at the close of the preceding U.S. trading day. Rationalizing unconditionally positive “overnight drift” returns, we uncover an asymmetric reaction to demand shocks: market sell-offs generate robust positive overnight reversals, while reversals following market rallies are much more modest. We argue that demand shock asymmetry can arise in inventory management models with time-varying market maker risk-bearing capacity.

In this paper, we argue that monetary policy in the form of central bank communication can shape long-term interest rates by changing risk premia. Using high-frequency movements of default-free rates and equity, we show that monetary policy communications by the European Central Bank on regular announcement days led to a significant yield spread between peripheral and core countries during the European sovereign debt crisis by increasing credit risk premia. We also show that central bank communication has a powerful impact on the yield curve outside regular monetary policy days. We interpret these findings through the lens of a model linking information embedded in central bank communication to sovereign yields.

This paper proposes an aggregation scheme of subjective bond return expectations based on the historical accuracy of professional interest rate forecasters. We use disaggregated survey data on bond returns and document large disagreement in the cross-sectional distribution and persistence in forecast accuracy. Our aggregate subjective belief proxy outperforms equal weighting schemes, and its dynamics are significantly different from statistical forecasting models. With this measure in hand, we study the relationship between quantities of risk and subjective expectations of excess returns and demonstrate a strong link between the two, even if such a relationship is difficult to detect using realized returns.

The U.S. dollar appreciates in the run‐up to foreign exchange (FX) fixes and depreciates thereafter, tracing a W ‐shaped return pattern around the clock. Return reversals for the top nine traded currencies over a 21‐year period are pervasive and highly statistically significant, and they imply daily swings of more than one billion U.S. dollars based on spot volumes. Using natural experiments, we document the existence of a published reference rate determines the timing of intraday return reversals. We present evidence consistent with an inventory risk explanation whereby FX dealers intermediate unconditional demand for U.S. dollars at the fixes.