Skip to main content
×
Home
    • Aa
    • Aa

Paying Attention: Overnight Returns and the Hidden Cost of Buying at the Open

  • Henk Berkman (a1), Paul D. Koch (a2), Laura Tuttle (a3) and Ying Jenny Zhang (a4)
Abstract
Abstract

We find a strong tendency for positive returns during the overnight period followed by reversals during the trading day. This behavior is driven by an opening price that is high relative to intraday prices. It is concentrated among stocks that have recently attracted the attention of retail investors, it is more pronounced for stocks that are difficult to value and costly to arbitrage, and it is greater during periods of high overall retail investor sentiment. The additional implicit transaction costs for retail traders who buy high-attention stocks near the open frequently exceed the effective half spread.

Copyright
Linked references
Hide All

This list contains references from the content that can be linked to their source. For a full set of references and notes please see the PDF or HTML where available.

V. V. Acharya , and L. H. Pedersen Asset Pricing with Liquidity Risk.” Journal of Financial Economics, 77 (2005), 375410.

A. Almazan ; K. C. Brown ; M. Carlson ; and D. A. Chapman Why Constrain Your Mutual Fund Manager?Journal of Financial Economics, 73 (2004), 289321.

P. Asquith ; P. A. Pathak ; and J. R. Ritter Short Interest, Institutional Ownership, and Stock Returns.” Journal of Financial Economics, 78 (2005), 243276.

M. Baker , and J. Wurgler Investor Sentiment in the Stock Market.” Journal of Economic Perspectives, 21 (2007), 129152.

B. M. Barber , and T. Odean All that Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors.” Review of Financial Studies, 21 (2008), 785818.

B. M. Barber ; T. Odean ; and N. Zhu Do Retail Trades Move Markets?Review of Financial Studies, 22 (2009), 151186.

M. J. Barclay , and T. Hendershott Price Discovery and Trading After Hours.” Review of Financial Studies, 16 (2003), 10411073.

M. J. Barclay , and T. Hendershott Liquidity Externalities and Adverse Selection: Evidence from Trading After Hours.” Journal of Finance, 59 (2004), 681710.

H. Berkman ; V. Dimitrov ; P. C. Jain ; P. D. Koch ; and S. Tice Sell on the News: Differences of Opinion, Short Sale Constraints, and Returns around Earnings Announcements.” Journal of Financial Economics, 92 (2009), 376399.

V. L Bernard . “Cross-Sectional Dependence and Problems in Inference in Market-Based Accounting Research.” Journal of Accounting Research, 25 (1987), l–48.

H. Bessembinder Issues in Assessing Trade Execution Costs.” Journal of Financial Markets, 6 (2003), 233257.

G. D’Avolio The Market for Borrowing Stock.” Journal of Financial Economics, 66 (2002), 271306.

J. B. De Long ; A. Shleifer ; L. H. Summers ; and R. J. Waldmann Noise Trader Risk in Financial Markets.” Journal of Political Economy, 98 (1990), 703738.

E. F. Fama , and J. D. MacBeth Risk, Return, and Equilibrium: Empirical Tests.” Journal of Political Economy, 81 (1973), 607636.

P. A. Gompers , and A. Metrick Institutional Investors and Equity Prices.” Quarterly Journal of Economics, 116 (2001), 229259.

J. M. Griffin ; J. H. Harris ; and S. Topaloglu The Dynamics of Institutional and Individual Trading.” Journal of Finance, 58 (2003), 22852320.

A. Kumar , and C. M. C. Lee Retail Investor Sentiment and Return Comovements.” Journal of Finance, 61 (2006), 24512486.

C. M. C. Lee , and M. J. Ready Inferring Trade Direction from Intraday Data.” Journal of Finance, 46 (1991), 733746.

S. Nagel Short Sales, Institutional Investors and the Cross-Section of Stock Returns.” Journal of Financial Economics, 78 (2005), 277309.

W. K. Newey , and K. D. West A Simple, Positive Semi-Definite Heteroskedasticity and Autocorrelation Consistent Covariance Matrix.” Econometrica, 55 (1987), 703708.

T. Odean Do Investors Trade Too Much?American Economic Review, 89 (1999), 12791298.

E. Ofek ; M. Richardson ; and R. F. Whitelaw Limited Arbitrage and Short Sales Restrictions: Evidence from the Options Markets.” Journal of Financial Economics, 74 (2004), 305342.

L. Pastor , and R. F. Stambaugh Liquidity Risk and Expected Stock Returns.” Journal of Political Economy, 111 (2003), 642685.

R. Sadka , and A. Scherbina Analyst Disagreement, Mispricing, and Liquidity.” Journal of Finance, 62 (2007), 23672403.

A. Shleifer , and R. W. Vishny The Limits of Arbitrage.” Journal of Finance, 52 (1997), 3555.

Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Financial and Quantitative Analysis
  • ISSN: 0022-1090
  • EISSN: 1756-6916
  • URL: /core/journals/journal-of-financial-and-quantitative-analysis
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 69 *
Loading metrics...

Abstract views

Total abstract views: 367 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 26th May 2017. This data will be updated every 24 hours.