Day and night expected returns under overnight information shocks: New tug-of-war pattern

This study examines the persistence in overnight and intraday return components in the light of overnight price jumps with a very large dataset of stocks listed on NYSE, AMEX, and NASDAQ. Factoring in overnight information shocks uncovers economically and statistically different tugof-war patterns for day and night return components. When stocks are sorted according to their monthly cumulative overnight returns, a zero-cost portfolio trading strategy yields a 3.9% lower risk-adjusted return for the overnight segment in jump stocks while the same strategy results in a 4.4% smaller loss during the intraday period in the following month. Findings reveal that the informational strength and surprise component of overnight news prompt adjustments in return patterns across daytime and overnight sections.