Overnight Returns, Daytime Reversals, and Future Stock Returns

73 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: September 1, 2021

Abstract

A higher frequency of positive overnight returns followed by negative trading day reversals during a month suggests a more intense 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 intense daily tug of war predicts higher future returns in the cross section. Additional tests support the conclusion that, in a more intense 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 (September 1, 2021). Journal of Financial Economics (JFE), Forthcoming, 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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