The Asymmetric Overnight Return Anomaly in the Chinese Stock Market

An, Yahui; Huang, Lin; Li, Youwei

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.

Citation

An, Y., Huang, L., & Li, Y. (2022). The Asymmetric Overnight Return Anomaly in the Chinese Stock Market. Journal of Risk and Financial Management, 15(11), Article 534. https://doi.org/10.3390/jrfm15110534

• Journal Article Type: Article
• Acceptance Date: Nov 13, 2022
• Online Publication Date: Nov 16, 2022
• Publication Date: Nov 16, 2022
• Deposit Date: Jan 3, 2023
• Publicly Available Date: Jan 3, 2023
• Journal: Journal of Risk and Financial Management
• Print ISSN: 1911-8066
• Electronic ISSN: 1911-8074
• Publisher: MDPI
• Peer Reviewed: Peer Reviewed
• Volume: 15
• Issue: 11
• Article Number: 534
• DOI: https://doi.org/10.3390/jrfm15110534
• Keywords: Overnight return anomaly; Individual investors; Limited attention
• Public URL: https://hull-repository.worktribe.com/output/4164212