Overnight Return Anomalies in the Oslo Stock Exchange: Causes and Potential Exploitations

Abstract

We investigate the overnight return anomaly in the Oslo stock exchange, confirming that overnight returns significantly outperform intraday returns. We calculate fractions of value-weighted average prices (VWAP) throughout the day and analyze the sources of overnight returns, concluding that higher prices at market open, potentially driven by changes in the overnight midpoint quote, are a significant factor of this anomaly. The presence of persistence and reversal patterns indicates that there are varied trading preferences among investors. The analysis of eleven distinct trading strategies reveals that three of the strategies earn their premia overnight, whereas the remaining eight strategies yield their premia intraday. We round off by demonstrating that lagged overnight and intraday returns, along with their exponentially weighted moving average (EWMA) values, are the most effective predictors of future returns.