Overnight Returns, Daytime Reversals, and Future Stock Returns

62 Pages Posted: 9 Feb 2019

See all articles by Ferhat Akbas

Ferhat Akbas

University of Illinois at Chicago

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business

Chao Jiang

University of South Carolina - Department of Finance

Paul D. Koch

Iowa State University - Finance Department; Iowa State University - Finance Department

Date Written: January 1, 2020

Abstract

A higher frequency of positive overnight returns followed by negative trading day reversals during a month suggests a more persistent daily tug of war between opposing investor clienteles, who are likely composed of noise traders overnight and arbitrageurs during the day. We show that a more persistent daily tug of war predicts higher future returns, both for individual stocks and the overall market. Additional tests support the conclusion that, in a more persistent tug of war, daytime arbitrageurs are more likely to discount the possibility that positive news arrives overnight, and thus overcorrect the persistent upward overnight price pressure.

Keywords: Opening price, overnight return, daytime reversal, heterogeneous investors, retail traders, arbitrageurs.

JEL Classification: D82, G14, G19

Suggested Citation

Akbas, Ferhat and Boehmer, Ekkehart and Jiang, Chao and Koch, Paul D., Overnight Returns, Daytime Reversals, and Future Stock Returns (January 1, 2020). Available at SSRN: https://ssrn.com/abstract= or http://dx.doi.org/10.2139/ssrn.3324880

Ferhat Akbas

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60076
United States

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business ( email )

Singapore

Chao Jiang (Contact Author)

University of South Carolina - Department of Finance ( email )

1014 Greene Street
Columbia, SC 29208
United States

Paul D. Koch

Iowa State University - Finance Department

Ivy College of Business
Ames, IA 50011
United States
5152942491 (Phone)

HOME PAGE: http://https://www.business.iastate.edu/directory/pkoch/

Iowa State University - Finance Department

Ames, IA 50011-2063
United States
5152942491 (Phone)

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