ABSTRACTThis study investigates the characteristics of traders' overreaction behaviour in China's soybean and corn futures markets to the overnight performance of U.S. futures markets and examines the impacts of the night trading policy on such overreaction behaviour. Our results reveal that traders in China generally overreact to U.S. markets' performance, but the overreaction diminishes when traders have enough time to calm their emotions. We also find that the introduction of night trading implemented by China's futures exchanges significantly reduces daytime overreaction because the extension of trading hours ensures that unexpected information is promptly reflected during night trading sessions. The proposed trading strategy of exploiting the overreaction generates considerable profits. However, it has not worked since the introduction of night trading, which further confirms the policy effect of night trading. Our study provides valuable guidance for futures exchanges seeking to monitor overreaction behaviour and formulate policies to target such behaviour.
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