The asymmetric effect of information shock on overnight and intraday expected returns: Evidence from Chinese A-share stock market

Abstract

This study examines the impact of jumps in stock prices on the expected return and its components, overnight and intraday return. The findings reveal that a long-short jump return strategy generates positive risk-adjusted alphas for the close-to-close and overnight periods, but a negative alpha for the intraday period. These results are confirmed by Fama-MacBeth regressions. The positive premiums for the overnight and close-to-close periods are particularly evident for illiquid stocks and small firms. Further analysis indicates that it is positive jump returns, rather than negative jump returns, that primarily drive the positive (negative) overnight (intraday) return, as investors in the Chinese stock market tend to prefer buying winners. Lastly, limited investor attention is identified as a factor contributing to the heterogeneous effects of jumps on overnight and intraday return responses to information shock.