Overnight returns, daytime reversals, and anchoring bias

ABSTRACT

This study explores the impact of anchoring bias on the daily tug-of-war in financial markets, specifically examining the reversal dynamics between overnight and daytime periods in relation to the 52-week high price. After analysing the interplay between anchoring bias and the abnormal intensity of the tug-of-war (AB_NR), our findings reveal a significant AB_NR premium for stocks far from their 52-week high prices. This sheds light on the important role of psychological barriers faced by noise investors during overnight periods in shaping return dynamics.

KEYWORDS:

• Overnight return
• daytime reversal
• arbitrageurs
• anchoring bias
• 52-week high

JEL CLASSIFICATION:

• G11
• G12
• G14

Disclosure statement

No potential conflict of interest was reported by the authors.

Supplementary material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/13504851.2024.2332578.

Notes

¹ https://pages.stern.nyu.edu/~jwurgler/