OVERNIGHT STOCK PRICE REVERSALS

Andrey Kudryavtsev

Journal of Advanced Studies in Finance, 2012, vol. 3, issue 2, 162-170

Abstract: In present study I explore the dynamics of stock price reversals In particular I try to shed light on the overnight reversals that is on the price reversals between the end of a trading day and the opening session of the next trading day To account for the end of the day price moves for each of the stocks currently making up the Dow Jones Industrial Index I compare on the daily basis the high to close and the low to close price changes and also compare them to the same day s average and median changes for the total sample of stocks I document that opening returns tend to be higher following the days with relatively large high to close price changes price decreases at the end of the day and lower following the days with relatively large low to close price changes price increases at the end of the day Such overnight reversals price behavior seems to contradict the market efficiency Finally I construct five portfolios based on the opening trading sessions and involving a long position in the stocks on the days when according to the overnight reversals behavior their opening returns are expected to be high and a short position in the stocks on the days when their opening returns are expected to be low All the portfolios are found to yield significantly positive returns providing an evidence for the practical applicability of the overnight reversals pattern in stock prices

Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:srs:jasf00:v:3:y:2012:i:2:p:162-170

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