Overnight Reversal Effects in the High-Yield Market

High-yield bond ETFs represent a unique financial vehicle: they are highly liquid instruments that hold inherently illiquid securities, creating a fertile ground for predictable market behaviors. Our latest research uncovers an intriguing anomaly within these ETFs, similar to those observed in the stock market: overnight returns are systematically higher than intraday returns. This overnight anomaly in high-yield bonds is not only prevalent but also exhibits a distinct seasonal pattern, primarily from Monday’s close to Tuesday’s open and from Tuesday’s close to Wednesday’s open. Additionally, this anomaly displays a reversal characteristic, where overnight performance is typically more robust following a negative close-to-close performance in the preceding period. These findings reveal potential opportunities for trading strategies that leverage these consistent overnight return patterns, offering new insights into high-yield bond trading dynamics.

https://quantpedia.com/overnight-reversal-effects-in-the-high-yield-market/