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Do Overnight Returns Truly Measure Firm-Specific Investor Sentiment in the KOSPI Market?

Author

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  • Sang Ik Seok

    (College of Business, Korea Advanced Institute of Science and Technology, 85, Hoegi-ro, Dongdaemun-gu, Seoul 02455, Korea)

  • Hoon Cho

    (College of Business, Korea Advanced Institute of Science and Technology, 85, Hoegi-ro, Dongdaemun-gu, Seoul 02455, Korea)

  • Chanhi Park

    (College of Business and Economics, Chung-Ang University, 84, Heukseok-ro, Dongjak-gu, Seoul 06974, Korea)

  • Doojin Ryu

    (College of Economics, Sungkyunkwan University, 25-2, Sungkyunkwan-ro, Jongno-gu, Seoul 03063, Korea)

Abstract

This study analyzes the effect of overnight returns on subsequent stock market returns and investigates whether they do capture investor sentiment in the Korean stock market. Recent study showed that overnight returns are similar to existing sentiment measures, and, thus, are suitable for measuring firm-specific investor sentiment in the U.S. market. Similarly, we found that, for firms in the Korean market, high overnight returns are followed by higher stock returns in the short term (i.e., two or three trading days) but lower stock returns in the long term. However, these effects do not differ for different types of firms (i.e., hard-to-value firms), whereas classical firm-specific sentiment indicators capture these differences. Overall, we found that overnight returns do not truly measure firm-specific investor sentiment in the Korean stock market even though they are partially related to investor sentiment.

Suggested Citation

  • Sang Ik Seok & Hoon Cho & Chanhi Park & Doojin Ryu, 2019. "Do Overnight Returns Truly Measure Firm-Specific Investor Sentiment in the KOSPI Market?," Sustainability, MDPI, vol. 11(13), pages 1-14, July.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:13:p:3718-:d:246434
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