Today, the KraneShares CSI Chinese Internet ETF (KWEB) gapped down by 4.1% due to regulatory pressures from the Chinese Communist Party and an uptick of COVID cases in a few Chinese cities. Since KWEB’s inception in August 2013, the ETF has only gapped down by 4%+ 12 times, the largest of which was an 11.6% drop in March of 2020 during the height of the COVID crash. Following these weak opening gaps, KWEB has tended to partially recover throughout the day, booking a median gain of 1.6% between the open and the close. However, today the stock bucked that pattern and continued to decline from the open to close falling an additional 2%, resulting in a total loss of over 6%.

Following prior downside gaps of 4%+, KWEB has bounced back by a median of 3.7% the next day, with positive returns nearly two-thirds of the time. Over the course of the next week, KWEB has posted a median gain of 1.0%, which is 0.6 percentage points better than the average of all periods. For all the time periods that we looked at, KWEB’s median performance following these occurrences has outperformed the median of all periods, apart from the following month. Three months later, KWEB has booked a median gain of 9.0%, which is 7.5 percentage points higher than the 1.5% average for all periods. 

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