Can overnight return really serve as a proxy for firm-specific investor sentiment? Cross-country evidence

Abstract

This paper investigates the suitability of employing overnight return as the proxy for firm-specific investor sentiment in six G7 countries (excluding U.S.) and five Asia-Pacific countries (New Zealand, Singapore, Australia, China and India), by analyzing whether it processes certain characteristics expected of sentiment measurement, i.e., short-run persistence, whether the persistence is more pronounced for harder-to-value firms and long-run reversal. Overall, the empirical findings fail to support that overnight return is a satisfied proxy for firm-specific investor sentiment outside the U.S. stock market.