Night Trading: Lower Risk But Higher Returns?
51 Pages Posted: 22 Jul 2015
Date Written: July 18, 2015
Abstract
This paper demonstrates that overnight returns are subject to highly persistent biases and examines the profitability of overnight-only investments in that context. Overnight returns tend to exceed their intraday counterparts, and the paper first reconciles these patterns by introducing a model that factors in recurring biases. This model identifies one fifth of stocks as having positive and statistically significant overnight biases. Investing overnight in these stocks in the next year yields twice the market’s return for a third of the market beta. Results have also implications for daytime investors as these stocks average negative returns intraday. Implementation costs and issues are discussed.
Keywords: Overnight returns, short-term return anomalies, transaction costs, portfolio strategies
JEL Classification: G11, G12, N20
Suggested Citation: Suggested Citation