The nexus of overnight trend and asset prices in China

Guo, Jiaqi; Han, Xing; Li, Kai; Li, Youwei

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.

Citation

Guo, J., Han, X., Li, K., & Li, Y. (2025). The nexus of overnight trend and asset prices in China. Journal of Economic Dynamics and Control, 170, Article 104997. https://doi.org/10.1016/j.jedc.2024.104997

• Journal Article Type: Article
• Acceptance Date: Nov 11, 2024
• Online Publication Date: Nov 23, 2024
• Publication Date: Jan 1, 2025
• Deposit Date: Nov 23, 2024
• Publicly Available Date: Dec 5, 2024
• Journal: Journal of Economic Dynamics and Control
• Print ISSN: 0165-1889
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 170
• Article Number: 104997
• DOI: https://doi.org/10.1016/j.jedc.2024.104997
• Keywords: Overnight Trend; Investor Clientele; Momentum; Slow Diffusion of Information; Asset Prices
• Public URL: https://hull-repository.worktribe.com/output/4922835