Abstract
Akbas et al. (2021) demonstrate that a more intense daily "tug of war" between overnight noise traders and daytime arbitrageurs predicts higher future returns in the US market. We investigate whether the daily tug of war contains predictive information about future stock returns in China. Using the frequency of negative daytime reversals, we find no significant difference in the future returns of stocks with a high versus a low level of intensity in this tug of war. However, we find persistent positive overnight returns followed by daytime reversals of almost similar magnitudes once we decompose the future returns into their overnight and daytime components. Thus, positive returns of the overnight component and negative returns of the daytime component cancel out each other, resulting in no predictive relationship between the daily tug of war and future returns in China.