Asset pricing: A tale of night and day

Overnight-Intraday Mispricing of Chinese Energy Stocks: A View from Financial Anomalies

“…Muravyev and Ni (2020) decompose option returns into intraday and overnight components, finding a pattern of positive intraday returns and negative overnight returns. Hendershott et al (2020) find that stock returns are positively related to beta overnight, whereas returns are negatively related to beta during the trading day. Qiao and Dam (2020) document the average overnight return in the Chinese stock market is negative and argue that the "T+1" trading rule contributes significantly to this overnight return puzzle.…”

“…In recent years, the literature documents unique characteristics of the components of close-to-close return among different financial markets (Cliff et al, 2008;Cai and Qiu 2009;Kelly and Clark 2011;Aboody et al, 2018;Lou et al, 2019;Muravyev and Ni 2020;Hendershott et al, 2020;Qiao and Dam 2020). Specifically, Cliff et al (2008) document that strongly positive return at night and negative return during the day holds for individual stocks, equity indexes, and future contracts on equity indexes Cai and Qiu (2009) find that overnight nontrading period returns are significantly higher than both trading period returns and close-to-close daily returns in 23 countries at the stock index level, and they asserted that short selling contributed to this phenomenon.…”

portfolio: A command for conducting portfolio analysis in Stata

“…It is used to explore cross-sectional pricing factors for equity assets. Numerous pricing factors have been well revealed in the cutting-edge studies of empirical asset pricing through portfolio analysis (see, for example, Fama and French [2015]; Lee et al [2019]; Hendershott, Livdan, and Rösch [2020]). Portfolio analysis is a nonparametric approach and therefore does not require any assumptions prior to the analysis.…”

CAPM verification using overnight and daytime returns

“…Black explained that investors with leverage constraints build their portfolio with higher betas, and hence, stocks with high betas require a relatively low-risk premium. Hendershott et al (2019) examined the relationship between the returns and beta on the daily data. They determined that the security market line is negative when using the daytime return, i.e.…”

“…Such phenomena are not limited to the US stock market but to other stock markets such as that of the EU. Hendershott et al (2019) described this phenomenon as a result of speculative behaviors of day traders. These day traders with speculative tendencies short sell low-beta stocks and buy high-beta stocks when the market opens and clears their portfolios before the market closes in the afternoon due to leverage constraints.…”