Do Fixed-Income ETFs Overreact?
- Júlio Lobão ,
Fixed Income Exchange Traded Funds, Overreaction, Short Term Reversal of Return, Price Predictability ,
This article investigates the short-term price predictability of US fixed income ETFs in response to extreme price shocks. Through an evaluation of 582 extreme price movements of ETFs in the 2007-2014 period, we compared the returns during the normal period (from the opening to the end of the session) and the returns outside of those hours for a group of 87 ETFs. We find a strong contrast between what happens in these two periods: on average, only extreme returns that occur outside of normal hours represent an overreaction, leading to a significant reversal in the next period. Our results suggest that markets tend to be significantly more inefficient during overtime.