39 Pages Posted: 24 Jan 2015 Last revised: 1 Feb 2017
Date Written: October 1, 2016
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: 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