Making Money While You Sleep? Anomalies in International Day and Night Returns
26 Pages Posted: 7 Oct 2015
Date Written: October 7, 2015
In this paper, we decompose return premia into day and night components based on a sample of more than 48,000 stocks from 35 countries including the United States. Day returns are higher than night returns, but have similar volatility. Payoffs to value- or equally-weighted investment strategies based on size, book-to-market, momentum, long-term reversals, accruals, net share issuances, asset growth, and profitability tend to be positive for day returns, but negative or zero for night returns. Fama-MacBeth tests show that the well-known relationships between total returns and lagged firm characteristics are the result of their relationships with day returns, while their relationships with night returns are of opposite signs. While contemporaneous, independent work by Lou et al. (2015) also documents that U.S. price momentum occurs overnight, this result is the exception rather than the rule, since price momentum as well as most other anomalies are driven by day returns outside the United States. Results are robust across countries and subsamples, although there are variations in the magnitude of the strategy payoffs across countries.
Keywords: Overnight returns, asset pricing, return factors
JEL Classification: G3, F4, F3
Suggested Citation: Suggested Citation