Intraday Patterns in the Cross-section of Stock Returns

2010/05/19 by Steven L. Heston, Robert A. Korajczyk, Ronnie Sadka · 2 citations
Economics, Econometrics and Finance · #q-fin.TR

paper · pdf

published as Forthcomming: Journal of Finance 65 (4), 2010 1369-1407

arxiv created 2010/05/19 · arxiv updated 2010/05/20

Abstract

Motivated by the literature on investment flows and optimal trading, we examine intraday predictability in the cross-section of stock returns. We find a striking pattern of return continuation at half-hour intervals that are exact multiples of a trading day, and this effect lasts for at least 40 trading days. Volume, order imbalance, volatility, and bid-ask spreads exhibit similar patterns, but do not explain the return patterns. We also show that short-term return reversal is driven by temporary liquidity imbalances lasting less than an hour and bid-ask bounce. Timing trades can reduce execution costs by the equivalent of the effective spread.

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