Overnight returns, daytime reversals, and future stock returns

Ferhat Akbas, Ekkehart Boehmer, Chao Jiang and Paul D. Koch

Journal of Financial Economics, 2022, vol. 145, issue 3, 850-875

Abstract: A higher frequency of positive overnight returns followed by negative trading day reversals during a month suggests a more intense daily tug of war between opposing investor clienteles, who are likely composed of noise traders overnight and arbitrageurs during the day. We show that a more intense daily tug of war predicts higher future returns in the cross section. Additional tests support the conclusion that, in a more intense tug of war, daytime arbitrageurs are more likely to discount the possibility that positive news arrives overnight and thus overcorrect the persistent upward overnight price pressure.

Keywords: Overnight return; Daytime reversal; Heterogeneous investors; Retail traders; Arbitrageurs (search for similar items in EconPapers)
JEL-codes: D82 G14 G19 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:145:y:2022:i:3:p:850-875

DOI: 10.1016/j.jfineco.2021.09.019

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