Movement of Stock Overnight

Vs

Movement of Stock During Trading Day

 

 

 

 

            For our simulation of the stock market activity we needed to model both how the price of the stock moves during the day-time trading hours, as well as how the stock moves overnight.  In order to estimate the amount the stock moves overnight in relation to the day time, we found the average ratio of night movement/day movement.  In order to eliminate a source of error we started our analysis one month after decimalization of the stock market.  We then went through each day and computed the ratio of how much the stock changed overnight (absolute value) / how much the stock moved during the day (absolute value).  In order to get more accurate results, for each day we averaged the previous and next night changes to get the night movement of the stock, as well as the current, next, and previous trading days in order to get the trading day movement.   We then averaged these ratios over all stocks on the DOW for each day.  We ignored periods of where the stock split or the company issued a dividend.  Below is a graph of the plots of the different ratios we came across in our experiment.

 

 

 

 

The average ratio we found was :  56.7 %

The median was : 52.7 %

 

 

Also, I plotted the time series of how the average ratio changed over the number of days that we examined.  This is shown in the graph below.   This simply illustrates that the average ratio does not change that drastically over the course of the days we looked at.