4-Factor Model for Overnight Returns
Wilmott Magazine 2015(79) (2015) 56-62
19 Pages Posted: 20 Oct 2014 Last revised: 24 Sep 2015
Date Written: June 4, 2015
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.
Keywords: risk factors, overnight returns, price, size, volatility, momentum, liquidity, volume, Fama-MacBeth regression, intraday, t-statistic, mean-reversion
JEL Classification: G00
Suggested Citation: Suggested Citation