Do Fixed-Income ETFs Overreact? Evidence of Short-term Predictability following Extreme Price Shocks

Júlio Lobão and Ana Isabel Costa
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Júlio Lobão: Universidade do Porto - Faculdade de Economia do Porto. Porto. Portugal
Ana Isabel Costa: Universidade do Porto - Faculdade de Economia do Porto. Porto. Portugal

Cuadernos de Economía - Spanish Journal of Economics and Finance, 2020, vol. 43, issue 122, 131-144

Abstract: This paper investigates the short-term price predictability of US fixed-income ETFs in reaction to one-day extreme returns. Based on an assessment of 582 extreme price movements of ETFs in the 2007-2014 period, we compare the normal hours returns (‘open-to-close’) and after-hours returns (‘close-to-open’) for a group of 87 ETFs. We find a stark contrast between what occurs in these two periods: on average only extreme returns that occur after-hours represent an overreaction, leading to a significant reversal in the following period. Our results suggest that markets during after-hours tend to be significantly more inefficient. These results carry important implications for both regulators and market practitioners.

Keywords: Fixed-income exchange traded funds; Overreaction; Short-term return reversal; Price predictability (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cud:journl:v:43:y:2020:i:122:p:131-144

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