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Overnight returns, daytime reversals, and future stock returns: Is China different?

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  • Cheema, Muhammad A.
  • Chiah, Mardy
  • Man, Yimei

Abstract

Akbas et al. (2021) demonstrate that a more intense daily “tug of war” between overnight noise traders and daytime arbitrageurs predicts higher future returns in the US market. We investigate whether the daily tug of war contains predictive information about future stock returns in China. Using the frequency of negative daytime reversals, we find no significant difference in the future returns of stocks with a high versus a low level of intensity in this tug of war. However, we find persistent positive overnight returns followed by daytime reversals of almost similar magnitudes once we decompose the future returns into their overnight and daytime components. Thus, positive returns of the overnight component and negative returns of the daytime component cancel out each other, resulting in no predictive relationship between the daily tug of war and future returns in China.

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  • Cheema, Muhammad A. & Chiah, Mardy & Man, Yimei, 2022. "Overnight returns, daytime reversals, and future stock returns: Is China different?," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:pacfin:v:74:y:2022:i:c:s0927538x22001044
    DOI: 10.1016/j.pacfin.2022.101809
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    Cited by:

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    3. Lin, Chaonan & Chang, Hui-Wen & Chou, Robin K., 2023. "Overnight versus intraday returns of anomalies in China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    4. Bai, Fan & Zhang, Yaqi & Chen, Zhonglu & Li, Yan, 2023. "The volatility of daily tug-of-war intensity and stock market returns," Finance Research Letters, Elsevier, vol. 55(PA).

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    More about this item

    Keywords

    Tug of war; China; Overnight returns; Daytime reversal; Individuals; Arbitrageurs;
    All these keywords.

    JEL classification:

    • 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

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