Buy-side divergence of opinion and stock returns: Evidence from call auctions

This paper uses the call auctions of the Chinese stock market to provide high-frequency evidence on how divergence of opinion under short-sale frictions is reflected in prices. By leveraging the institutional design of the call auction – specifically the requirement to commit non-cancellable orders prior to the determination of the opening price – we isolate the formation of opinion divergence from the price determination process in a temporal sequence. We construct a buy-side divergence measure from order-level bid prices submitted during the opening call auction and find that stocks with higher buy-side divergence earn significantly higher overnight returns at the open (3.05% per month for the long-short portfolio). This rise in the opening price largely reverses in the continuous trading session of the same day, resulting in an intraday overvaluation–correction pattern consistent with the hypothesis of Miller (1977). These effects are amplified by tighter short-sale constraints, corroborating that frictions hinder the incorporation of pessimistic opinions into prices. Furthermore, mechanism tests favor the “constrained pessimists” channel over alternative explanations, such as “absent pessimists” or mechanical price pressure. By employing a novel measure and identification strategy, this study helps fill a gap regarding the contemporaneous price impact of divergence and provides granular evidence on its microstructure foundations.