Opening Returns, Noise and Overreaction

Posted: 28 Dec 2000


In this article a partial adjustment model, which shows how equity prices fail to adjust instantaneously to new information has been estimated using a Kalman filter. For the components of the Dow Jones Industrial thirty index I aim to identify whether overreaction or noise is the cause of serial correlation and high volatility associated with opening returns. I find that the tendency for overreaction in opening prices is much stronger than for closing prices; therefore, overreaction rather than noise may account for differences in the return behavior of opening and closing returns.

JEL Classification: G12

Suggested Citation

Chelley-Steeley, Patricia, Opening Returns, Noise and Overreaction. Available at SSRN:

Patricia Chelley-Steeley (Contact Author)

Aston University - Aston Business School ( email )

Aston Triangle
Birmingham, B47ET
United Kingdom

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