Working Papers

[Abstract] We document significant outperformance of stocks whose industry peers currently experience salient (attention-grabbing) gains, especially those with strong social ties. The long-short strategy based on this effect can earn a risk-adjusted return of 12.5% (t = 5.58) per year. The pricing results can be differentiated from well-known cross-stock momentum and can’t be attributed to risk-based explanations or short-term reversals. The effect is more pronounced when focal firms are more centered on social networks, receive less attention, or are faced with greater limits of arbitrage. We argue that these findings align with categorical thinking, where the salience of peer firm performance distracts investor attention from the focal firm, leading to investor underreaction.

[Abstract] In most stock markets, average overnight (close-to-open) returns are high while intraday (open-to-close) returns are low, even negative. We show that retail trading proportion (RTP) is a major explanatory variable for this "overnight-intraday return gap" by using data from Korea where accurate and exhaustive retail trade flows are available. To establish a causal relationship between the return gap and RTP, we use an instrumental variables approach that exploits retail investors' tendency to more actively trade stocks with low per-share prices. We attribute this relationship to the recurrent retail ebb and flow stemming from the retail investors' demand for daytime stock market exposure.

[Abstract] We document a novel high-volume overnight premium (intraday discount). Specifically, stocks with high trading volume exhibit remarkable future outperformance (underperformance) during overnight (intraday) period. The results are pervasive across global equity markets, robust to alternative measures of trading volume, and persistent for at least three years after portfolio formation. Aligned with a model of heterogeneous investors, the overnight premium and intraday discount are more pronounced when (uninformed) investors are more optimistic or certain about the economy. The predictability of trading volume mainly stems from its retail activity component.