Work

The Nexus of Overnight Trend and Asset Prices in China

Year: 2021

Type: article

Abstract: Leveraging the systematic variations in investor clientele within a day, we validate an adapted version of the Hong and Stein (1999) model that addresses the consequences of slow information diffusion in China. The model predicts that overnight returns, rather than total returns, strongly forecast future returns, as informed overnight clientele underreact to value-relevant signals. Empirically, we establish a consistent overnight trend phenomenon: Firms with a strong overnight trend reliably outperform those with a weak overnight trend in the subsequent month. The phenomenon is more pronounced among stocks with higher levels of information asymmetry , valuation uncertainty, and relative mispricing. Furthermore, the overnight trend predicts positively firm fundamentals in the cross section.

Source: Journal of Economic Dynamics and Control

DOI: 10.1016/j.jedc.2024.104997

Authors: Jiaqi Guo, Xing Han, Kai Li, Youwei Li

Institutions: University of Birmingham, University of Auckland, University of Hull

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $2,360

Funders: Macquarie University, National Natural Science Foundation of China