Overnight Returns: An International Sentiment Measure

Abstract

The suitability of overnight returns as a firm-specific investor sentiment measure, previously found in the United States, is similarly present in international equity markets. This delivers a completely novel approach to measure investor sentiment at the firm level. For applicability reasons overnight returns have to fulfill 3 characteristics that would be expected of a sentiment measure. First, overnight returns persist in the short run; second, this persistence is stronger among harder-to-value firms; and third, stocks with high overnight returns underperform in the long run. Implementing this novel sentiment measure on a common anomaly, the authors find explanatory power even beyond a market-wide sentiment measure.