Overnight Stock Price Reversals
In present study, I explore the dynamics of stock price reversals. In particular, I try to shed light on the overnight reversals, that is, on the price reversals between the end of a trading day and the opening session of the next trading day. To account for the "end-of-the-day" price moves, for each of the stocks currently making up the Dow Jones Industrial Index, I compare, on the daily basis, the high-to-close and the low-to-close price changes, and also compare them to the same day's average and median changes for the total sample of stocks. I document that opening returns tend to be higher following the days with relatively large high-to-close price changes (price decreases at the end of the day), and lower following the days with relatively large low-to-close price changes (price increases at the end of the day). Such "overnight reversals" price behavior seems to contradict the market efficiency. Finally, I construct five portfolios based on the opening trading sessions and involving a long position in the stocks on the days when, according to the "overnight reversals" behavior, their opening returns are expected to be high and a short position in the stocks on the days when their opening returns are expected to be low. All the portfolios are found to yield significantly positive returns, providing an evidence for the practical applicability of the "overnight reversals" pattern in stock prices.
When requesting a correction, please mention this item's handle: RePEc:srs:jasf12:4:v:3:y:2012:i:2:p:162-170. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Laura Stefanescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.