Overnight returns of industry exchange‐traded funds, investor sentiment, and futures market returns

Abstract

This study investigates whether investor sentiment estimated by overnight returns of industry exchange‐traded funds (ETFs) affects Volatility Index (VIX) futures and stock index futures returns. Our empirical results indicate that high overnight returns of industry ETFs are associated with sentiment‐based trading. The results also show that investor sentiment, as measured by the relative comovements of overnight returns of industry ETFs, Granger‐causes VIX futures and stock index futures returns, but not vice versa. Finally, investor sentiment, as measured by the relative comovements, displays statistically and economically significant out‐of‐sample predictive power for VIX futures and stock index futures returns.

Historical Narratives and the Defense of Stigmatized Industries

“…Following an election in 2015, Canada acquired a government committed to the full legalization of recreational cannabis (Ouellet et al, 2017). Canada’s cannabis industry then changed, with firms listing on the Toronto Stock Exchange and acquiring many of the organizational features associated with other large corporations (Lee, 2018). In October 2018, the sale and consumption of cannabis for nonmedical reasons was legalized throughout Canada (Global News—Staff, 2018).…”

Lever up! An analysis of options trading in leveraged ETFs

“…Conversely, the predictability of ETF returns, primarily shaped by broad market dynamics, has received much less attention in the literature. Despite this relative scarcity of research on ETF return predictability, the growing importance of ETFs in portfolio management and investment strategies renders this topic highly relevant and timely (Aquilina et al, 2020; Ben‐David et al, 2023; Brown et al, 2021; Lee et al, 2022; Sun et al, 2016).…”

Trading around the clock: Revisit volatility spillover between crude oil and equity markets in different trading sessions

“…Therefore, it is normally assumed that overnight information could be reflected rapidly in asset prices when the new trading day starts (Ahoniemi et al, 2015), and the overnight return is calculated based on the difference between the closing price on the previous day and the opening price on the following day. While overnight information is important to study asset price volatility (Tsiakas, 2008; Wang et al, 2022), it is proved that the traditional method of using only one squared overnight return is not sufficient to capture overnight price dynamics (Lee et al, 2022; Lyócsa & Todorova, 2020). Therefore, a new proxy is required to study the overnight information flow in the financial market.…”

“…Second, we provide new empirical evidence of the importance of overnight trading information. We extend the previous research of overnight information study of asset price volatility (Lee et al, 2022;Lyócsa & Todorova, 2020;Tsiakas, 2008;Wang et al, 2022) by considering the trading time difference in different countries. In the current globalization and digital trading era, there is not any real overnight exist, as investors from some counties are trading while investors from other counties are sleeping due to the time lag.…”

“…closing price on the previous day and the opening price on the following day. While overnight information is important to study asset price volatility (Tsiakas, 2008;Wang et al, 2022), it is proved that the traditional method of using only one squared overnight return is not sufficient to capture overnight price dynamics (Lee et al, 2022;Lyócsa & Todorova, 2020). Therefore, a new proxy is required to study the overnight information flow in the financial market.…”