Quant Macro Investing

Risk Taking Disciplined

The International Evidence of the Overnight Return Anomaly


The International Evidence of the Overnight Return Anomaly

Tao Cai
affiliation not provided to SSRN

Mei Qiu
Massey University

August 21, 2009

Using daily stock index data of 29 countries, we find that overnight nontrading period returns are significantly higher than both trading period returns and close-to-close daily returns in 23 countries. One possible explanation for this phenomenon could be an assertion made by Miller (1977) that divergence of opinions may cause overpricing of securities when short selling is constrained. As divergence of investor opinions build up during the overnight nontrading period, stocks tend to be overpriced when the markets reopen and then drift back to their equilibrium during the trading hours. In fact, we find greater differences between overnight return and trading-hour returns for countries having short sale constrains as against the countries not having short sale constrains. Further, volatilities of overnight returns are greater than volatilities of trading period returns in short selling constrained markets but vice versa in markets without short selling constrains. 

Keywords: overnight, return, short sale constrain

JEL Classifications: G14

Working Paper Series

September 14, 2009 - Posted by | Tools

1 Comment »

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    A definite great read..Jim Bean

    Comment by JimmyBean | October 1, 2009 | Reply

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