Intraday Stock Return Continuation and Short-Term Reversal

Summary

The document studies predictability across stocks at intraday horizons, motivated by research on investment flows and optimal trade timing. It reports return continuation at half-hour intervals that recur at corresponding points across trading days, with the pattern persisting for at least forty trading days. Trading volume, order imbalance, volatility, and bid-ask spreads show related patterns, but the analysis says these variables do not account for the return continuation.

It also examines short-term reversal and attributes it to temporary liquidity imbalances lasting under an hour and to bid-ask bounce. The authors connect these findings to execution: choosing when to trade can lower costs by an amount equivalent to the effective spread. The supplied description does not specify the sample, estimation details, or whether the timing benefit survives implementation costs and other markets. The patterns therefore offer evidence about intraday stock behavior and execution timing, but do not by themselves define a complete trading strategy.

Key ideas

• Stock returns show continuation at recurring half-hour intervals across trading days.
• The reported continuation lasts at least forty trading days.
• Similar patterns in volume, imbalance, volatility, and spreads do not explain the return effect.
• Short-term reversal is linked to brief liquidity imbalances and bid-ask bounce.
• Trade timing may reduce execution costs by an amount comparable to the effective spread.

Tags

# Intraday Patterns in the Cross-section of Stock Returns


# Intraday Patterns in the Cross-section of Stock Returns









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.

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.