Overnight Returns: Investor Sentiment or Investor Attention?

56 Pages Posted: 14 Apr 2022

See all articles by Ahmed Ameya Prapan

Ahmed Ameya Prapan

University of Manchester - Alliance Manchester Business School

Evangelos Vagenas-Nanos

University of Glasgow

Date Written: March 4, 2022

Abstract

What are the behavioural characteristics of overnight returns? Unlike prior literature, we unveil that overnight trading activity exhibits behavioural elements of an investor attention rather than an investor sentiment measure. Overnight returns are employed as a proxy of investor sentiment, and absolute overnight returns are used a proxy of investor attention. Using mergers and acquisitions as a testing framework, we find that pre-acquisition announcement absolute overnight returns are positively associated with bidder short-run performance for acquisitions of private targets paid with stock and negatively associated for acquisitions of public targets paid with stock. The market overreaction is stronger for harder-to-value deals and those with lower institutional ownership, while it is reversed in the long run. This evidence is in line with the predictions of the investor attention hypothesis. There is no relationship between pre-acquisition announcement overnight returns and bidder short-run performance.

Keywords: Overnight returns, sentiment, attention, mergers and acquisitions

JEL Classification: G14, G34, G40

Suggested Citation

Prapan, Ahmed Ameya and Vagenas-Nanos, Evangelos, Overnight Returns: Investor Sentiment or Investor Attention? (March 4, 2022). Available at SSRN: https://ssrn.com/abstract=4015493 or http://dx.doi.org/10.2139/ssrn.4015493

Ahmed Ameya Prapan (Contact Author)

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Evangelos Vagenas-Nanos

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

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