1 research outputs found

    The overnight return puzzle and the "T+1" trading rule in Chinese stock markets

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    Overnight returns in Chinese stock markets are on average negative. This overnight return puzzle appears to be unique to Chinese markets. We hypothesize that a particular arrangement in Chinese stock markets explains the puzzle: the β€œT+1” trading rule. T+1 trading prohibits traders from selling the shares they bought on the same day. This restriction leads to a discount on daily opening prices. We find empirical support that the T+1 induced discount explains the overnight return puzzle and estimate the average T+1 discount at 14 bps. In addition, we establish that the T+1 discount contributes significantly to overnight risk
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