The effects of overnight events on daytime trading sessions |
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| Institution: | 1. Department of Mathematics and School of Economics and Management, University of Bologna, Bologna, Italy;2. Department of Economics, Society and Politics, University of Urbino Carlo Bo, Italy;3. Department of Economics, University of Bamberg, Germany;1. Department of Economics, Sungkyunkwan University, Seoul, Republic of Korea;2. McIntire School of Commerce, University of Virginia, Charlottesville, VA, U.S.A;3. Global Finance Research Center, Sungkyunkwan University, Seoul, Republic of Korea;1. Middle East Technical University, Faculty of Economics and Administrative Sciences, Department of Business Administration, Dumlupınar Bulvarı, Ankara 06800, Turkey;2. Bilkent University, Faculty of Business Administration, Department of Management, Bilkent, Ankara 06800, Turkey;1. Faculty of Business, City University of Macau, Macau, China;2. School of Business, Macau University of Science and Technology, Macau, China |
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| Abstract: | This study investigates the association between overnight and daytime-trading session returns in U.S. equity markets over the last 14 years and interprets it using the overreaction hypothesis. To identify the effects of overnight overreactions on daytime trading sessions, we control for daily investor sentiment, firms' fundamental variables, and risk factors. Our results suggest that investors tend to overreact overnight and react more dispassionately during daytime trading sessions. Investors' reactions differ across sectors, and the degree of overreaction is greater in cyclical industries than in defensive industries. Additionally, we analyze the impacts of overnight reactions on daytime trading sessions focusing on recession periods. The impacts differ by subperiods and are pronounced during the Global Financial Crisis and the onset of the COVID-19 pandemic. Investors' reactions to overnight news events also respond differently to demand and supply shock-induced recessions. |
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