Daytime Returns Research Articles

Asymmetric connectedness in the Chinese stock sectors: Overnight and daytime return spillovers

Asymmetric connectedness in the Chinese stock sectors: Overnight and daytime return spillovers

The Effects of Overnight Events on Daytime Return: A Market Microstructure Analysis of Market Quality

The Effects of Overnight Events on Daytime Return: A Market Microstructure Analysis of Market Quality

Price discovery or overreaction? A study on the reaction of Asia Pacific country ETFs to the US stock market

ABSTRACT Despite the presence of arbitrage mechanisms, large premiums (or discounts) for Asia Pacific country ETFs in the US market could still exist in the short run due to the time gap between trading hours of the US and Asia Pacific markets. The price of a country ETF is not solely determined by net asset value but is also affected by information released during US trading hours. In this study, I examine six Asia Pacific country ETFs from 2006 to 2020, using linear regression as well as tree-based ensemble methods to predict the next-day return of the net asset value by analysing information from country ETFs and the S&P 500 Index. The results indicate that the trading hours of local markets significantly influence the predictive power of country ETFs and the S&P 500 Index. The findings suggest that the returns of these ETFs do not necessarily overreact to the US market but instead reflect short-term expectations of the performance of underlying indices. Furthermore, I extend the model to analyse overnight and daytime returns and identify the price correction that occurs during daytime trading hours.

How do investors react to overnight returns? Evidence from Korea

We find a negative relationship between overnight and daytime returns on the Korean equity market. Overnight returns are positively (negatively) and nonlinearly associated with subsequent daytime returns when the overnight news is relatively good (bad). Trades by individual investors respond negatively to overnight returns, whereas those by domestic and foreign institutional investors exhibit positive-feedback trading behavior. Our findings challenge the conventional presumption about investors’ responses to overnight returns.

The Asymmetric Overnight Return Anomaly in the Chinese Stock Market

Traditional asset pricing theory suggests that to compensate for the uncertainty that investors bear, risky assets should generate considerably higher rates of return than the risk-free rate. However, the overnight return anomaly in the Chinese stock market, which refers to the anomaly that overnight return is significantly negative, contradicts the risk–return trade-off. We find that this anomaly is asymmetrical, as the overnight return is significantly negative after a negative daytime return, whereas the anomaly does not occur following a positive daytime return. We explain this anomaly from the perspective of investor attention. We show that the attention of individual investors behaves asymmetrically such that they draw more attention on negative daytime returns, and play an essential role in explaining the overnight return puzzle.

고차 적률을 이용한 주야간 수익률 분석

The market anomalies are one of the main topics in empirical asset pricing area. Higher moments of returns such as volatility, skewness and kurtosis are widely used measures for the market anomalies since these statistics are well known for capturing investors’ bias or preferences. On the other hand, some of the prior research argues that market anomalies mainly occur during daytime, which implies traditional asset pricing theory still works despite of the anomalies. This is because investors reaction to the information has to be reflected to the price via trading activities. In this paper, we decompose daily returns into daytime and overnight returns to explain market anomalies. Firstly, we confirm that volatility anomalies exist in the Korean stock market, i.e, higher volatility stocks tend to show lower daytime returns and higher overnight returns. Secondly, similar patterns are observed in case of skewness and kurtosis. By analyzing the daytime and overnight returns separately, it can lead to implications that investors

Investigating the Sources of Day and Night Returns

Recent research has shown that the premiums of many popular factors are earned at different times of the day. I examine how time of day affects the performance of the Fama and French (1996) and Fama and French (2015) factor models. I find that factor models composed of nighttime returns perform significantly better in explaining average portfolio returns but models using exclusively daytime returns better explain total portfolio variance. In investigating this further I find that daytime returns are sensitive to changes in investor sentiment whereas overnight returns are dependent on macroeconomic conditions largely consistent with Daniel, Hirshleifer, and Subrahmanyam (2001). Additionally, as predicted by the theoretical literature, I find that an increase in personal consumption substantially decreases returns occurring during the daytime when investors are most active.

CAPM verification using overnight and daytime returns

Purpose The capital asset pricing model has failed to explain the effect of systematic risk (referred to as beta) on actual stock market returns. Accordingly, this study analyzes daily returns by splitting it into overnight and daytime returns. The study analysis empirically confirms a positive relationship between overnight returns and beta and a negative relation between daytime returns and beta. Furthermore, this paper aims to determine that empirical results are mostly the same with three different beta calculations, namely, daily, overnight and daytime returns. The study concludes that beta on overnight returns has the strongest explanatory power and is statistically significant.

Analysing time difference and volatility linkages between China and the United States during financial crises and stable period using VARX‐DCC‐MEGARCH model

AbstractThe study implies VARX‐DCC‐MEGARCH model to investigate the returns transmission, volatility spillovers, asymmetry effect and the dynamic correlation between China and U.S. stock markets, as well as their local stock markets. We found that daytime returns of U.S. stock markets affect the overnight returns of Chinese stock markets. However, overnight returns transmission from the United States to China (daytime) was insignificant. Returns transmissions from Chinese stock markets to the United States are not significant. Daytime volatility of U.S. stock markets significantly spillovers the overnight volatility of Chinese stock markets and daytime volatility of Chinese stock markets spillovers the overnight volatility of U.S. stock markets. Moreover, during financial crises period, negative daily returns of Chinese stock markets significantly transmit to U.S. stock markets. Additionally, returns and volatility spillovers between local markets of the United States was also significant. During the financial crisis, the volatility spillovers between local stocks market of China was significant on one hand and leverage effect for U.S. and Chinese stock markets were also significant on the other hand.

Overnight Returns as a Market Timing Strategy

Risk-adjusted overnight returns greatly exceed risk-adjusted daytime returns. Researchers use Jensen's alpha or the Fama-French three factor model for risk adjustment and use Fama-MacBeth regressions to test the estimated betas' predictivity. However, owning stocks only during the day or night is a market timing strategy. Using the non-linear factors proposed by Merton (1981) and Goetzmann et al. (2000), we show that the close-to-open strategy has negative market timing ability (measured by a non-linear regressor) with a positive selectivity alpha (measured by alpha), while the open-to-close strategy has the opposite. We also find that alpha is significant in down market periods.

필라델피아 반도체지수의 국내 반도체시장에 대한 수익률 및 변동성 전이효과

The purpose of this study is to examine the effect of symmetrical and asymmetric information transfer on the Korean semiconductor index of the Philadelphia Semiconductor Index in the US, and also to examine the relationship between the changes in the domestic semiconductor index and the trading patterns of foreign and institutional investors. The main results are as follows. First, we find that the Philadelphia Semiconductor Index in the US affects the yield and volatility of the domestic semiconductor market. In other words, the rise(fall) of the Philadelphia Semiconductor Index affects the rise(fall) of the domestic KRX and KOSDAQ semiconductor indexes, also the increase(reduction) of the volatility of the Philadelphia Semiconductor Index affects the volatility increase(reduction) of the Korea Semiconductor Indexes. It is interesting to note that if the Philadelphia Semiconductor Index rises(falls), the domestic semiconductor market undergoes an adjustment after overreacting with a rise(fall) at its initial price. Second, the domestic semiconductor indexes have asymmetrical information effects on the Philadelphia semiconductor index. Third, the trading behavior of foreigners and institutional investors was found to have a positive relationship with both the night and daytime returns of the KRX Semiconductor Index. On the other hand, in the KOSDAQ semiconductor index market, both foreign and institutional investors showed a statistically significant positive value only for daytime returns.

On the Nature of Jump Risk Premia

We propose a model-free method for measuring the jump skewness risk premium via a trading strategy. We find that in the S&P 500 option market, the premium is positive and greater in absolute terms than the variance premium. The trading strategy allows for examining the premium in different holding periods: daytime, when markets are open, and overnight, outside of trading hours. We demonstrate that both premia vary considerably between trading and non-trading periods, and also increase in periods of market distress. The daytime return on jump skewness is not spanned by other systematic risk factors, suggesting it is a systematic risk factor itself. Outside of trading hours, skewness risk does not seem to be distinguishable from variance risk. We also decompose total return skewness into a jump component, and a signed variance component, and demonstrate that only the jump component is priced. Our work also sketches a new set of stylized facts about variance and jump skewness premia that option pricing models should match.

Addressing Estrangement from Nature with a Night Class in the Forest

Young people today spend relatively little time in natural environments, and this can lead to problems when they enter college degree programs in environmental studies or sciences. We designed a field course to reconnect undergraduates with nature through focused exercises in wilderness survival. This course integrates multiple learning domains, with a primary focus on the affective. In this case study, we narrate the story of one exercise deployed in this course, a night class in the forest, which has proven valuable for helping our students develop an affective connection with the natural surroundings. The success of the exercise hinges on careful choreography and the authenticity of the nighttime forest setting. Oral testimonies and written reflections following a daytime return visit reveal profound impacts on students, both in their awareness of the environment around them and their sense of connection to it. This article concludes with several questions to help faculty and students critically consider their own teaching and learning in environmental studies, as well as the potential applicability of these exercises in other academic situations.

VC correlation analysis on the overnight and daytime return in Japanese stock market

While most financial engineering and econophysics studies have focused in daytime trading, much less investigation has been devoted to the non-trading or night periods. In this work, the correlation between overnight and daytime return (correlation ND) and the correlation between daytime return and following over night return (correlation DF) were investigated, which led to several findings. First, a weak negative correlation between overnight and daytime return (correlation ND) was observed in Japanese Stocks Market. Secondly, the application of Volatility Constrained correlation (VC correlation) method led to a significant amplification of this signal which benefits for increasing predictability of day time return compared to standard correlation. Furthermore, the analysis of the amplified signal derived from VC correlation for each stock revealed a linear scale relationship between the standard correlation and VC correlation. Therefore, this result indicates that by using the VC correlation, stronger correlation effect can be observed. Taking together, these findings suggest that the combination of VC approach with financial trading data over night paves the way to improve market predictability.

Inter- and intra-regional analysis on spillover effects across international stock markets

This paper examines the inter- and intra-regional spillover effects across international stock markets in London, Paris, Frankfurt, Toronto, New York, Tokyo, Shanghai, Hong Kong, and Mumbai by using both symmetric and asymmetric causality tests. The obtained results show that the inter-regional spillover effect in daytime returns is stronger and more frequent than the intra-regional one. The asymmetric spillover effect is evident for price shocks originating from Asian markets. In addition, the empirical results show that the Shanghai stock market is the least integrated of all nine markets considered.

Empirical differences between the overnight and day trading hour returns

PurposeThe purpose of this paper is to provide a stable model which covers market information of return to examine the empirical differences between the returns during night and day in Chinese commodity futures market.Design/methodology/approachCommodity indices are constructed using principal components analysis to represent the market returns for day and night trading in the Chinese commodity futures market. Then VAR models are employed to predict the commodity indices’ returns and squared returns.FindingsThe symmetric VAR model failed to model the market returns since the asymmetric effects of positive and negative returns are not taken into account. By allowing asymmetric behavior among positive and negative variables, asymmetric VAR model is utilized to trace the leading effect of overnight returns to daytime trading returns. However, the symmetric VAR model outperforms the asymmetric model when evaluating the predictive power of squared returns during night trading hours. Two major results based on asymmetric model for the return are: There is a 6-day leading effect of nighttime return to daytime return in Chinese commodity futures market. It is risky to hold day trading position overnight.Research limitations/implicationsAsymmetric VAR model provides a new approach to forecasting the direction of price movement.Practical implicationsInvestment managers are able to create a stable portfolio contains major market information. Day and night traders are likely to gain some suggestions to discover arbitrage opportunities.Social implicationsSince there is no commodity futures index in China, the method for creating indices for Chinese commodity futures is provided to market regulators.Originality/valueCombining principal component analysis and asymmetric VAR model provides a stable and predictable model to obtain market information.

Does a unique “T+1 trading rule” in China incur return difference between daytime and overnight periods?

PurposeThe purpose of this paper is to examine the difference between the daytime (open-to-close) and overnight (close-to-open) returns of CSI 300 index and its derivative futures.Design/methodology/approachThe paper explores the difference between the daytime and overnight time returns by using nonparametric techniques. Moreover, investigation on some factors such as short selling, trading rules, risks are made to seek the sources of the day and night effects based on a large number of empirical analysis. In the end, further analyses on daytime and overnight returns are given by the use of high-frequency data and linear regression technique.FindingsThe authors show that the daytime returns of CSI 300 index are no less than its overnight returns, while the daytime returns of CSI 300 index futures are no more than its overnight returns, even after removing the heteroscedasticity of the researched time series. Specifically, the PM returns (13:05 to close) play a quite important role in the intra-day time. The findings also suggest that the unique “T+1 trading rule” in China may be a reason that incurs the lower opening price in the morning and the higher closing price in the afternoon, resulting in the statistically significant differences between the daytime and overnight returns.Practical implicationsThe findings are of great importance for investors to decide when to buy and sell stock and futures portfolios in Chinese financial markets.Originality/valueThis study empirically analyzes why there the higher daytime returns and the lower overnight returns exist in the Chinese stock markets from different aspects and contributes the existing literature on day and night effects because of periodic market closures.

Information transmission and dynamics of stock price movements: An empirical analysis of BRICS and US stock markets

This paper investigates the information transmission and spillover effects between the US stock market and the emerging stock markets of Brazil, Russia, India, China, and South Africa (BRICS) for the period 1999 to 2012. The paper uses a variant of the aggregate shock model under the GARCH framework and investigates the effects of both return and volatility spillover from the US market to the BRICS markets and among the BRICS markets. The chronological order of trading among the six markets (US and five BRICS markets) is utilized in analyzing the transmission of information between the US and BRICS equity markets. The results suggest that the US stock market has a significant mean return and volatility spillover effects on the BRICS stock markets. In addition, the Chinese stock market exerts a significant mean spillover effects on both the Indian and the US stock markets, and the mean spillover effects from the Indian market to the Chinese market are equally strong. Further, overnight returns in the BRICS stock markets are significantly influenced by their own latest daytime returns. The results contribute to the extant spillover literature in demonstrating that the mean and volatility spillover effects exist not only from the US market to the well-developed equity markets of Europe and East Asia as shown in previous studies, but they also exist from the US market to the emerging equity markets of BRICS economies.

Price Discovery on the International Soybean Futures Markets: A Threshold Co‐Integration Approach

This paper investigates the lead‐lag relationships among soybean prices in United States, Brazilian, and Chinese futures markets. We focus on both long‐run price co‐movements and on short‐run price relationships. Various co‐integration methodologies and causality tests are applied to examine the changes in price relationships over time. The empirical results indicate the following: (a) the soybean futures market in the U.S. is still the most important and influential market, and the U.S. price, in the long‐term, leads price changes in Brazil and China; (b) in the short‐term, the overnight return of U.S. soybean futures and the daytime return of Chinese No. 1 soybean futures contemporaneously affect each other, but there is no significant causality between U.S. overnight return and the daytime return of Chinese No. 2 soybean futures; and, (c) a weak temporal seasonal causality between U.S. and Brazilian soybean futures price exists and more often than not Brazilian futures lead U.S. futures during the Brazilian growing season. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 37:52–70, 2017

Modeling asymmetric and dynamic dependence of overnight and daytime returns: An empirical evidence from China Banking Sector

Different from previous literature which investigate the dependences between financial variables of interest on close-to-close returns, in this paper we study the dynamic dependence structures between each pair of the overnight (daytime) returns of four major bank shares in China A share market using copula-GARCH models. Besides, to examine the impact of the creation of the CSI 300 stock index futures on the dependence structure, we use the date (April, 16, 2010) when the index futures was launched to break the entire sample into two subsamples. Our results show that the dependences between each pair of overnight (daytime) returns are time-varying. Moreover, the magnitude of the dependence decreases substantially after the creation of the CSI 300 index futures. Additionally, in general the correlations (dependences) between each pair of daytime returns are larger than the correlations (dependences) between each pair of overnight returns, especially for the period after the creation of the index futures.