The Asymmetric Overnight Return Anomaly in the Chinese Stock Market

Yahui An (), Lin Huang and Youwei Li
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Yahui An: Finance Department, School of Economics, Tianjin University of Commerce, Tianjin 300134, China
Lin Huang: School of Management, Fudan University, Shanghai 200433, China

JRFM, 2022, vol. 15, issue 11, 1-20

Abstract: Traditional asset pricing theory suggests that to compensate for the uncertainty that investors bear, risky assets should generate considerably higher rates of return than the risk-free rate. However, the overnight return anomaly in the Chinese stock market, which refers to the anomaly that overnight return is significantly negative, contradicts the risk–return trade-off. We find that this anomaly is asymmetrical, as the overnight return is significantly negative after a negative daytime return, whereas the anomaly does not occur following a positive daytime return. We explain this anomaly from the perspective of investor attention. We show that the attention of individual investors behaves asymmetrically such that they draw more attention on negative daytime returns, and play an essential role in explaining the overnight return puzzle.

Keywords: overnight return anomaly; individual investors; limited attention (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2022
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