Concept

Weekend/overnight Volatility Profile

Weekend/overnight Volatility Profile is a Volatility concept.

What is a weekend/overnight volatility profile?

A weekend/overnight volatility profile is a statistical study of how much price movement occurs while a market is closed or thinly traded, compared with its regular hours. It splits each week into buckets, such as the overnight gap from close to next open, the regular session from open to close, and the Friday-close-to-Monday-open weekend window, then measures realized volatility separately in each bucket.

The study exists because volatility is not uniform in clock time. Equity index movement concentrates near the open and close, with the overnight window contributing a meaningful share of total variance despite having no tradable prints for most participants. Spot forex quiets into Friday afternoon and reopens Sunday with concentrated gap risk. Crypto trades continuously, but weekend liquidity often thins, which in many venues produces fewer large moves on average punctuated by occasional outsized wicks when a shock hits a shallow book.

Traders care because any position held across a close is exposed to movement they cannot manage in real time. Knowing what fraction of an instrument's variance typically accrues overnight or over the weekend informs position sizing, stop placement, and the decision to flatten before the close, and it corrects volatility models that would otherwise treat every hour of the week as equivalent.

How it's calculated

There is no single canonical indicator; the standard construction buckets log returns by session window and computes realized volatility per bucket.

r_bucket = ln(P_end / P_start)
sigma_bucket = sqrt((1/N) * sum(r_bucket_i^2)), summed over the N occurrences of that bucket
overnight_share = sigma_overnight^2 / (sigma_overnight^2 + sigma_intraday^2)
P_start: price at the start of the window (e.g. session close)
P_end: price at the end of the window (e.g. next session open)
r_bucket_i: log return of the i-th occurrence of the window
N: number of occurrences in the sample (often 1 to 3 years)
sigma_bucket: realized volatility of that window
overnight_share: fraction of total variance contributed by the overnight window

Variance, not volatility, is additive across windows, so shares are computed on squared terms.

Some studies subtract the mean return per bucket; over short windows the difference is usually small.

Session boundaries must match the venue's actual schedule; see the conventions under regular versus extended hours.

How traders use it

  • Sizing positions held over a close: if the weekend or overnight bucket historically carries a large share of variance, traders reduce size or hedge before the close, in the spirit of volatility-targeted sizing applied per session rather than per day.
  • Stop placement in forex: stops resting inside the typical Sunday-open gap distance are effectively untested protection, since a gap can jump straight past them; the profile quantifies how wide that buffer needs to be.
  • Regime comparison in crypto: comparing weekend to weekday realized volatility flags when thin-liquidity behavior is changing, which interacts with derivatives positioning such as the funding rate.
  • Model calibration: variance-weighting the hours of the week, rather than assuming uniform time, improves annualization and intraday vol forecasts; ignoring the profile tends to overstate overnight risk in some markets and understate it in others.
  • Honest limitation: the profile is an average over history, and a single macro event weekend can dwarf years of quiet ones, so it describes typical behavior rather than bounding the worst case.

Weekend/overnight profile vs related session studies

Weekend Gap: A weekend gap is a single event, the open printing away from Friday's close. The profile is the distribution those events come from, measured over many weekends alongside the other windows of the week.

RTH vs ETH: RTH versus ETH is about which session's prices define levels and ranges. The volatility profile asks a narrower statistical question: how much variance each window contributes, regardless of which levels you draw.

Intraday Time-of-day Effects: Time-of-day effects slice the open session into hours or half-hours. The weekend/overnight profile works at coarser resolution, comparing closed-market windows against the whole open session.

Concept family

Volatility

57 concepts mapped · 57 in the Library

Weekend/overnight Volatility Profile FAQ

Is crypto really quieter on weekends?

Volume is usually thinner, and average realized volatility is often somewhat lower, but thin books cut both ways: when a shock lands on a weekend, the move can be larger than the same flow would cause midweek. Measure your specific instrument rather than assuming.

Should I always close positions before the weekend?

Not necessarily. Flattening removes gap risk but also forfeits any drift earned while closed, and in some equity indices a substantial share of long-run returns has historically accrued overnight. The profile tells you the cost-benefit; it does not decide for you.

How much history do I need to build a profile?

One to three years is a common compromise. Shorter samples are dominated by a few event weekends; much longer samples blend regimes, since exchange hours, participation, and day-of-week effects drift over time.

Why do my overnight numbers differ from published studies?

Usually the session definition. Whether you measure close-to-open on the futures, the cash index, or an ETF, and whether holidays are pooled with weekends, changes the buckets materially. The gap and volatility relation is also regime-dependent, so sample periods matter.

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