Journal of Financial and Quantitative Analysis

Research Articles

Paying Attention: Overnight Returns and the Hidden Cost of Buying at the Open

Henk Berkmana1, Paul D. Kocha2, Laura Tuttlea3 and Ying Jenny Zhanga4

a1, Business School, University of Auckland, 12 Grafton Rd, Auckland, New Zealand; Koch

a2, School of Business, University of Kansas, Summerfield Hall, Lawrence, KS 66045

a3, School of Business and Management, American University of Sharjah, PO Box 26666, Sharjah, United Arab Emirates

a4, College of Business Administration, Missouri State University, 901 S National Ave, Springfield, MO 65897


We find a strong tendency for positive returns during the overnight period followed by reversals during the trading day. This behavior is driven by an opening price that is high relative to intraday prices. It is concentrated among stocks that have recently attracted the attention of retail investors, it is more pronounced for stocks that are difficult to value and costly to arbitrage, and it is greater during periods of high overall retail investor sentiment. The additional implicit transaction costs for retail traders who buy high-attention stocks near the open frequently exceed the effective half spread.


  We thank an anonymous referee, Chris Anderson, Audra Boone, Stephen Brown (the editor), Bob DeYoung, Laura Field, Ben Jacobsen, Kelly Welch, Jide Wintoki, and seminar participants at the University of Auckland, Massey University, the University of Kansas, the 2009 New Zealand Finance Colloquium, the Securities and Exchange Commission, and the national conferences of the Financial Management Association and the Eastern Finance Association for their helpful comments on earlier drafts. We thank Jeff Harris, Frank Hatheway, and NASDAQ OMX for access to proprietary data. We also thank Xin Zhao for excellent research assistance. In addition, Koch acknowledges support from the University of Auckland and Massey University, where he served as a visiting professor while conducting this research. Tuttle acknowledges research support from the Commodity Futures Trading Commission, where she served as a visiting economist.