59 Pages Posted: 21 Nov 2009 Last revised: 27 May 2010
Date Written: May 26, 2010
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.
Keywords: Return periodicity, Market Microstructure
JEL Classification: G12, G14
Suggested Citation: Suggested Citation
Heston, Steven L. and Korajczyk, Robert A. and Sadka, Ronnie, Intraday Patterns in the Cross-Section of Stock Returns (May 26, 2010). Journal of Finance, Vol. 65, No. 4, pp. 1369-1407, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1509466