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The Asymmetric Overnight Return Anomaly in the Chinese Stock Market

Author

Listed:
  • Yahui An

    (Finance Department, School of Economics, Tianjin University of Commerce, Tianjin 300134, China)

  • Lin Huang

    (School of Management, Fudan University, Shanghai 200433, China)

  • Youwei Li

    (Hull University Business School, University of Hull, Hull HU6 7RX, UK)

Abstract

Traditional asset pricing theory suggests that to compensate for the uncertainty that investors bear, risky assets should generate considerably higher rates of return than the risk-free rate. However, the overnight return anomaly in the Chinese stock market, which refers to the anomaly that overnight return is significantly negative, contradicts the risk–return trade-off. We find that this anomaly is asymmetrical, as the overnight return is significantly negative after a negative daytime return, whereas the anomaly does not occur following a positive daytime return. We explain this anomaly from the perspective of investor attention. We show that the attention of individual investors behaves asymmetrically such that they draw more attention on negative daytime returns, and play an essential role in explaining the overnight return puzzle.

Suggested Citation

  • Yahui An & Lin Huang & Youwei Li, 2022. "The Asymmetric Overnight Return Anomaly in the Chinese Stock Market," JRFM, MDPI, vol. 15(11), pages 1-20, November.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:11:p:534-:d:974482
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    References listed on IDEAS

    as
    1. Oldfield, George S, Jr & Rogalski, Richard J, 1980. "A Theory of Common Stock Returns over Trading and Non-Trading Periods," Journal of Finance, American Finance Association, vol. 35(3), pages 729-751, June.
    2. Qiao, Kenan & Dam, Lammertjan, 2020. "The overnight return puzzle and the “T+1” trading rule in Chinese stock markets," Journal of Financial Markets, Elsevier, vol. 50(C).
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    4. Huang, Bwo-Nung & Yang, Chin-Wei & Hu, John Wei-Shan, 2000. "Causality and cointegration of stock markets among the United States, Japan and the South China Growth Triangle," International Review of Financial Analysis, Elsevier, vol. 9(3), pages 281-297.
    5. Gao, Ya & Han, Xing & Li, Youwei & Xiong, Xiong, 2019. "Overnight momentum, informational shocks, and late informed trading in China," International Review of Financial Analysis, Elsevier, vol. 66(C).
    6. Abraham, Abraham & Ikenberry, David L., 1994. "The Individual Investor and the Weekend Effect," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(2), pages 263-277, June.
    7. Qin Wang & Jun Zhang, 2015. "Individual investor trading and stock liquidity," Review of Quantitative Finance and Accounting, Springer, vol. 45(3), pages 485-508, October.
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    Cited by:

    1. Guo, Jingxing & Luo, Xingguo & Yang, Liu, 2025. "Intraday herding drivers in China’s A-share market: evidence from the China Securities Smallcap 500 Index," Finance Research Letters, Elsevier, vol. 85(PE).

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