Convergence, Regional house prices, Structural time series models, Trends and cycles, Unobserved components, C32, C33, E32, R11,

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Market efficiency implies that the risk-adjusted returns from holding stocks during regular trading hours should be indistinguishable from the risk-adjusted returns from holding stocks outside those hours. We find evidence to the contrary. We use broad-based index exchange-traded funds for our analysis and the Sharpe ratio to compare returns. The magnitude of this effect is startling. For example, the geometric average close-to-open (CO) risk premium (return minus the risk-free rate) of the QQQQ from 1999-2006 was þ 23.7 per cent whereas the average open-to-close risk premium was À23.3 per cent with lower volatility for the CO risk premium. This result has broad implications for when investors should buy and sell broadly diversified portfolios.

Land development process, Preselling, Risk management, Real options,