Abstract

The main goal of this paper is to introduce an innovative market anomaly relating to “time” during the overnight post-market session and therefore characterized as a temporal market anomaly. Anomalies in the markets appear from time to time and test the efficient market hypothesis. Many investors and traders believe that the markets follow the efficient market hypothesis. According to this theory the current price of a security (trading instrument) reflects all public and private information about that security (instrument). Changes in price are due to insider information, current news, or sudden events, which are impossible to predict. Hence, security’s price action follows the path of a random walk, the hypothesis and argument of which states that current price is not dependent on past price and is normally or abnormally distributed over time. In financial and economical literature, many studies have presented approaches about what the academics call “market anomalies” and according to literature the anomalies are classified in three categories: Fundamental, Technical, and Calendar-based anomalies. In this article another class of market anomalies is introduced, that simply could be referred to as “temporal” because of the timing functionality involved. Finally, I will discuss one of these “temporal” anomalies, called the overnight return temporal market anomaly. The presented research shows that momentum profit accumulates entirely overnight, while profit on all other strategies occurs entirely intraday. These findings strongly reject classical theories of intraday versus overnight returns.

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