Abstract
ABSTRACT This article shows that the overnight return reversal is strong at a firm level in the Chinese stock market: the overnight return negatively predicts the first half-hour return of individual stocks. We explain this phenomenon from the perspective of the pre-open auction mechanism. Taking a step further, we find that the Chinese stock market shows a pattern with average negative overnight return and positive first half-hour return. Additionally, the predictability is stronger on negative overnight returns and negative informational shocks compared with positive overnight returns and positive informational shocks. Both phenomena may be led by the combined effects of the pre-open auction mechanism and T + 1 trading rule.
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