4-Factor Model for Overnight Returns

Wilmott Magazine 2015(79) (2015) 56-62

19 Pages Posted: 20 Oct 2014 Last revised: 24 Sep 2015

See all articles by Zura Kakushadze

Zura Kakushadze

Quantigic Solutions LLC; Free University of Tbilisi

Date Written: June 4, 2015

Abstract

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

Kakushadze, Zura, 4-Factor Model for Overnight Returns (June 4, 2015). Wilmott Magazine 2015(79) (2015) 56-62. Available at SSRN: https://ssrn.com/abstract=2511874 or http://dx.doi.org/10.2139/ssrn.2511874

Zura Kakushadze (Contact Author)

Quantigic Solutions LLC ( email )

1127 High Ridge Road #135
Stamford, CT 06905
United States
6462210440 (Phone)
6467923264 (Fax)

HOME PAGE: http://www.linkedin.com/in/zurakakushadze

Free University of Tbilisi ( email )

Business School and School of Physics
240, David Agmashenebeli Alley
Tbilisi, 0159
Georgia

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