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Intraday Patterns in the Cross-Section of Stock Returns, Journal of Finance

Abstract

Motivated by the literature on investment flows and optimal trading, this paper examines intraday predictability in the cross-section of stock returns. We confirm a well-known return reversal commonly associated with bid-ask bounce. Notably, we also find significant continuation of returns at half-hour intervals that are exact multiples of a trading day, and this effect lasts for forty trading days. Percentage changes in volume, order imbalance, and volatility exhibit similar patterns, but do not explain the return patterns. Additionally, bid/ask spreads do not explain the return pattern. The return continuation at daily frequencies is more pronounced for, but not restricted to, the first and last half-hour periods of the day. These effects are not driven by firm size, systematic risk premia, or inclusion in the S&P500 index. The pattern is robust to controlling for a number of documented types of periodicity. Our results suggest that traders may wish to time portfolio rebalancing to account for these persistent intraday patterns.

Type

Article

Author(s)

Steven Heston, Robert Korajczyk, Ronnie Sadka

Date Published

2010

Citations

Heston, Steven, Robert Korajczyk, and Ronnie Sadka. 2010. Intraday Patterns in the Cross-Section of Stock Returns. Journal of Finance. 65(4): 1369-1407.

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