From dusk till dawn (and vice versa): Overnight-versus-daytime reversals and feedback trading

Kallinterakis, Vasileios ORCID: 0000-0001-6217-1188 and Karaa, Rabaa (2023) From dusk till dawn (and vice versa): Overnight-versus-daytime reversals and feedback trading. International Review of Financial Analysis, 85. p. 102443.

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Abstract

Although overnight-versus-daytime return reversals have often been ascribed to the heterogeneous clienteles of the overnight and daytime sessions, there exists no evidence to date on how those clienteles' trading behaviour motivates these reversals. We empirically investigate this issue for the first time by assessing whether these reversals are the result of feedback trading during overnight/daytime hours. Drawing on the S&P 500 ETF for the 1993–2021 period, we find that overnight (daytime) feedback trading largely motivates the expected positive (negative) overnight (daytime) returns; in line with this, days entailing the expected negative overnight-versus-daytime return reversals accommodate stronger feedback trading at the daily (i.e., close-to-close) frequency. Daytime feedback trading is present when the immediately preceding overnight session's returns are positive, while overnight feedback trading reveals a strong Monday-effect. We also show that overnight-versus-daytime variations of feedback trading hold across other large US ETFs.

Item Type:	Article
Uncontrolled Keywords:	Feedback trading, Overnight returns, Daytime reversals, Heterogeneity, Exchange-traded funds
Depositing User:	Symplectic Admin
Date Deposited:	13 Dec 2022 09:00
Last Modified:	18 Jan 2023 19:39
DOI:	10.1016/j.irfa.2022.102443
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3166623