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The effects of overnight events on daytime trading sessions

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  • Ham, Hyuna
  • Ryu, Doojin
  • Webb, Robert I.

Abstract

This study investigates the association between overnight and daytime-trading session returns in U.S. equity markets over the last 14 years and interprets it using the overreaction hypothesis. To identify the effects of overnight overreactions on daytime trading sessions, we control for daily investor sentiment, firms' fundamental variables, and risk factors. Our results suggest that investors tend to overreact overnight and react more dispassionately during daytime trading sessions. Investors' reactions differ across sectors, and the degree of overreaction is greater in cyclical industries than in defensive industries. Additionally, we analyze the impacts of overnight reactions on daytime trading sessions focusing on recession periods. The impacts differ by subperiods and are pronounced during the Global Financial Crisis and the onset of the COVID-19 pandemic. Investors' reactions to overnight news events also respond differently to demand and supply shock-induced recessions.

Suggested Citation

  • Ham, Hyuna & Ryu, Doojin & Webb, Robert I., 2022. "The effects of overnight events on daytime trading sessions," International Review of Financial Analysis, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:finana:v:83:y:2022:i:c:s1057521922001892
    DOI: 10.1016/j.irfa.2022.102228
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    Cited by:

    1. Ham, Hyuna & Ryu, Doojin & Webb, Robert I. & Yu, Jinyoung, 2023. "How do investors react to overnight returns? Evidence from Korea," Finance Research Letters, Elsevier, vol. 54(C).
    2. Liu, Chunyuan & Han, Liyan & Chu, Gang, 2023. "The effect of overnight corporate announcements on price discovery," Finance Research Letters, Elsevier, vol. 53(C).
    3. Kallinterakis, Vasileios & Karaa, Rabaa, 2023. "From dusk till dawn (and vice versa): Overnight-versus-daytime reversals and feedback trading," International Review of Financial Analysis, Elsevier, vol. 85(C).
    4. Insana, Alessandra, 2023. "Betting against beta with intraday and overnight signals," International Review of Financial Analysis, Elsevier, vol. 86(C).
    5. Chu, Xiaojun & Wan, Xinmin & Qiu, Jianying, 2023. "The relative importance of overnight sentiment versus trading-hour sentiment in volatility forecasting," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).

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    More about this item

    Keywords

    Cyclical industry; Demand and supply shocks; Economic recession; Overnight returns; Time-series momentum; Trading strategy;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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