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Does a unique “T+1 trading rule” in China incur return difference between daytime and overnight periods?

Does a unique “T+1 trading rule” in China incur return difference between daytime and overnight... The purpose of this paper is to examine the difference between the daytime (open-to-close) and overnight (close-to-open) returns of CSI 300 index and its derivative futures.Design/methodology/approachThe paper explores the difference between the daytime and overnight time returns by using nonparametric techniques. Moreover, investigation on some factors such as short selling, trading rules, risks are made to seek the sources of the day and night effects based on a large number of empirical analysis. In the end, further analyses on daytime and overnight returns are given by the use of high-frequency data and linear regression technique.FindingsThe authors show that the daytime returns of CSI 300 index are no less than its overnight returns, while the daytime returns of CSI 300 index futures are no more than its overnight returns, even after removing the heteroscedasticity of the researched time series. Specifically, the PM returns (13:05 to close) play a quite important role in the intra-day time. The findings also suggest that the unique “T+1 trading rule” in China may be a reason that incurs the lower opening price in the morning and the higher closing price in the afternoon, resulting in the statistically significant differences between the daytime and overnight returns.Practical implicationsThe findings are of great importance for investors to decide when to buy and sell stock and futures portfolios in Chinese financial markets.Originality/valueThis study empirically analyzes why there the higher daytime returns and the lower overnight returns exist in the Chinese stock markets from different aspects and contributes the existing literature on day and night effects because of periodic market closures. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png China Finance Review International Emerald Publishing

Does a unique “T+1 trading rule” in China incur return difference between daytime and overnight periods?

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References (43)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
2044-1398
DOI
10.1108/cfri-12-2016-0130
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to examine the difference between the daytime (open-to-close) and overnight (close-to-open) returns of CSI 300 index and its derivative futures.Design/methodology/approachThe paper explores the difference between the daytime and overnight time returns by using nonparametric techniques. Moreover, investigation on some factors such as short selling, trading rules, risks are made to seek the sources of the day and night effects based on a large number of empirical analysis. In the end, further analyses on daytime and overnight returns are given by the use of high-frequency data and linear regression technique.FindingsThe authors show that the daytime returns of CSI 300 index are no less than its overnight returns, while the daytime returns of CSI 300 index futures are no more than its overnight returns, even after removing the heteroscedasticity of the researched time series. Specifically, the PM returns (13:05 to close) play a quite important role in the intra-day time. The findings also suggest that the unique “T+1 trading rule” in China may be a reason that incurs the lower opening price in the morning and the higher closing price in the afternoon, resulting in the statistically significant differences between the daytime and overnight returns.Practical implicationsThe findings are of great importance for investors to decide when to buy and sell stock and futures portfolios in Chinese financial markets.Originality/valueThis study empirically analyzes why there the higher daytime returns and the lower overnight returns exist in the Chinese stock markets from different aspects and contributes the existing literature on day and night effects because of periodic market closures.

Journal

China Finance Review International – Emerald Publishing

Published: Feb 14, 2018

Keywords: Short selling; Value at risk; Nonparametric test; T+0 trading rule; T+1 trading rule; C51; G14

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