Abstract
This paper explores whether investors use daily price extremes as reference points for short-term investing decisions by examining their relation with returns. Excess momentum returns are observed for days in which prices open outside of the previous day’s highest or lowest trading price. This relation is robust to market direction and is consistent over time. Contrary to the disposition effect, the evidence also shows that an additional momentum effect is present when the markets have been closed for two days and open lower than the previous trading day’s low, but a lesser (although significant) effect is documented for openings’ higher than the previous high.
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