Overnight Returns and Firm-Specific Investor Sentiment

39 Pages Posted: 24 Jan 2015 Last revised: 1 Feb 2017

David Aboody

University of California, Los Angeles (UCLA) - Accounting Area

Omri Even-Tov

Haas School of Business - UC Berkeley

Reuven Lehavy

University of Michigan, Stephen M. Ross School of Business

Brett Trueman

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: October 1, 2016

Abstract

We explore the possibility that overnight returns can serve as a measure of firm-specific investor sentiment by analyzing whether they exhibit characteristics expected of a sentiment measure. First, we document short-term persistence in overnight returns, consistent with existing evidence of short-term persistence in share demand of sentiment-influenced retail investors. Second, we find that short-term persistence is stronger for harder-to-value firms, consistent with evidence that sentiment plays a larger role when there is less objective data available for valuation. Third, we show that stocks with high (low) overnight returns underperform (outperform) over the longer-term, consistent with evidence of temporary sentiment-driven mispricing.

Keywords: investor sentiment, firm-specific, earnings announcements, overnight returns, close-to-open returns

JEL Classification: D84, G10, G14, M41

Suggested Citation

Aboody, David and Even-Tov, Omri and Lehavy, Reuven and Trueman, Brett, Overnight Returns and Firm-Specific Investor Sentiment (October 1, 2016). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2554010 or http://dx.doi.org/10.2139/ssrn.2554010

David Aboody

University of California, Los Angeles (UCLA) - Accounting Area ( email )

D410 Anderson Complex
Los Angeles, CA 90095-1481
United States
310-825-3393 (Phone)
310-267-2193 (Fax)

Omri Even-Tov

Haas School of Business - UC Berkeley ( email )

Haas School of Business
Berkeley, CA 94720
United States
3104302236 (Phone)

Reuven Lehavy

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109
United States
734-763-1508 (Phone)
734-936-0282 (Fax)

Brett Trueman (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
310-825-4720 (Phone)
310-267-2193 (Fax)

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