Overnight-Intraday Reversal Everywhere

Abstract

A strategy that buys securities with low past overnight returns and sells securities with high past overnight returns generates sizeable out-of-sample intraday returns and Sharpe ratios in all major asset classes. This strategy – labeled as overnight-intraday reversal – delivers an average return that is about two to five times larger than those generated by the conventional reversal strategy. Investor sentiment, macro-news announcements, and market uncertainty fail to explain this overnight-intraday reversal return. Our findings are consistent with an asset class-specific market maker liquidity provision mechanism, and we find that cross-sectional return dispersion could well predict the strategy returns.

Keywords: Overnight return, Intraday return, Short-term reversal, Liquidity provision

JEL Classification: G11, G12, G15, G20