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Intraday Price and Volume Factors for Predicting Overnight Returns

Article arXiv papers · Author: Zura Kakushadze
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Summary

The paper proposes four factors for explaining or predicting overnight returns, constructed from intraday price and volume data. The factors are designed as short-horizon analogues of size, volatility, momentum, and liquidity. Long-horizon fundamental measures such as value and growth are excluded because the authors argue that they lack predictive power at overnight horizons.

Historical regressions using a Fama–MacBeth approach show sizable serial t-statistics for the proposed factors, which the paper interprets as evidence of relevance to overnight returns. The authors also incorporate the factors into an explicit intraday mean-reversion alpha as a further check. The excerpt does not define the factors mathematically, specify the sample or assets, or report detailed regression and strategy results, so the strength and portability of the findings cannot be judged from this description alone.

Key ideas

  • The proposed model uses four factors built from intraday price and volume data.
  • The factors are analogues of size, volatility, momentum, and liquidity.
  • The authors exclude value and growth because they say these long-horizon factors do not predict overnight returns.
  • Historical Fama–MacBeth regressions show sizable serial t-statistics for the four factors.
  • The factors are also evaluated within an intraday mean-reversion alpha, though the excerpt omits detailed results.

Tags

EquitiesFactor investingMean reversionMomentumVolatility
Full text
# 4-Factor Model for Overnight Returns


# 4-Factor Model for Overnight Returns









We propose a 4-factor model for overnight returns and give explicit definitions of our 4 factors. Long horizon fundamental factors such as value and growth lack predictive power for overnight (or similar short horizon) returns and are not included. All 4 factors are constructed based on intraday price and volume data and are analogous to size (price), volatility, momentum and liquidity (volume). Historical regressions a la Fama and MacBeth (1973) suggest that our 4 factors have sizable serial t-statistic and appear to be relevant predictors for overnight returns. We check this by using our 4-factor model in an explicit intraday mean-reversion alpha.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.