The Timing of Information Arrival and Overnight Returns

This paper examines the information assimilation of overnight returns after positive or negative news arriving during RHT (regular-hours-trading) or AHT (after-hour-trading). We first show that overnight returns are informative of earnings news arriving either during RHT or AHT, and the effects are strongest on the first day after the announcement. Our results then suggest that positive (negative) overnight returns after good (bad) earnings news arrival increase (decrease) CARs, with more pronounced effects for news released AHT. We further show that the market takes the timing of news release into account and reacts negatively to those released during AHT, causing significant under-performance in the subsequent CAR. Lastly, our finding of market underreaction to good news and overreaction to bad news when it is released during AHT suggest that it may be more appropriate for managers to release all news during RHT when market participants are at their trading desks.