Download or read book Dispersion of Opinions, Limits to Arbitrage, and Overnight Returns written by Henk Berkman and published by . This book was released on 2009 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using nine years of intraday data for the largest 3,000 U.S. stocks, we find a strong tendency for positive returns during the overnight period followed by reversals during the subsequent trading day. This behavior is driven by an opening price that is high relative to intraday prices. Consistent with the theory of Miller (1977) and other disagreement models, we find this behavior is limited to stocks with high dispersion of opinions measured near the daily open, as well as over the entire trading day. Furthermore, the magnitude of these overnight returns and trading day reversals is progressively greater among finer subsamples of stocks subject to greater limits to arbitrage, embodied in more binding short sale constraints and high transaction costs.