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Early To Rise: When Opening Stock Returns Are Higher Than Daily Returns?

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  • KUDRYAVTSEV Andrey

    (The Max Stern Academic College of Emek Yezreel, Israel)

Abstract

In present study, I explore intraday behavior of stock prices. In particular, I try to shed light on the relationship between the widely-documented U-shaped intraday pattern of stock returns (e.g., Wood et al. (1985), Jain and Joh (1988), Pagano et al. (2008)) and the well-known concept of stock price overreaction resulting in potentially profitable investment strategies based on short-term price reversals (e.g., Zarowin (1989), Cox and Peterson (1994), Park (1995), Nam et al. (2001)). Employing the stocks making up the Dow Jones Industrial Index, I document that for the majority of stocks, open-to-close returns tend to be significantly lower, and in most cases negative, if on that respective day their opening returns are higher than the average or median opening return on the stocks in the sample. That is, relatively high opening stock returns may serve an indication for subsequent intraday price reversals and for even more pronounced intraday U-shaped return pattern. Based on these findings, I suggest two versions of a daily-adjusted reversal-based investment strategy yielding significantly higher returns and with significantly less risk, than the strategies involving passively holding the index or an equally-weighted portfolio of stocks.

Suggested Citation

  • KUDRYAVTSEV Andrey, 2012. "Early To Rise: When Opening Stock Returns Are Higher Than Daily Returns?," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 7(3), pages 58-73, December.
  • Handle: RePEc:blg:journl:v:7:y:2012:i:3:p:58-73
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    File URL: http://eccsf.ulbsibiu.ro/RePEc/blg/journl/735kudryavtsev.pdf
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    References listed on IDEAS

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    Cited by:

    1. Andrey KUDRYAVTSEV, 2013. "Mechanism Of Autocorrelations Of Individual Stocks' Opening Returns," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 12, pages 37-56, June.

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