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Think About Tomorrow Morning: Opening Stock Returns May Show Reversals

Author

Listed:
  • Andrey Kudryavtsev

    (The Max Stern Yezreel Valley Academic College)

Abstract

In present study, I explore the dynamics of the interday stock price reversals. Employing intraday price data on thirty stocks currently making up the Dow Jones Industrial Index, I document that stock returns in opening trading sessions tend to be higher following days with relatively low (either negative, or lower than the same day's average and median for the total sample of stocks) open-to-close returns. This kind of price behavior seems to contradict stock market efficiency. Based on this finding, I construct three portfolios based on the opening trading sessions and involving a long position in the stocks on the days when their opening returns are expected to be high and a short position in the stocks on the days when their opening returns are expected to be low. All the portfolios are found to yield significantly positive returns, providing an evidence for the practical applicability of the "overnight reversals" pattern in stock prices.

Suggested Citation

  • Andrey Kudryavtsev, 2013. "Think About Tomorrow Morning: Opening Stock Returns May Show Reversals," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 16(50), pages 51-64, December.
    • Handle: RePEc:rej:journl:v:16:y:2013:i:50:p:51-64
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    References listed on IDEAS

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    More about this item

    Keywords

    Investment Portfolios; Opening Returns; Open-to-Close Returns; Overreaction; Stock Price Reversals; Stock Return Autocorrelations;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G19 - Financial Economics - - General Financial Markets - - - Other

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