Market Closure and Short-Term Reversal

Posted: 11 Feb 2016

See all articles by Pasquale Della Corte

Pasquale Della Corte

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Robert Kosowski

Imperial College Business School; CEPR (Centre for Economic Policy Research); University of Oxford, Oxford-Man Institute of Quantitative Finance; Unigestion UK

Tianyu Wang

Tsinghua University

Date Written: November 30, 2015

Abstract

A strategy that holds daily long and short positions, respectively, in assets with low and high past overnight returns - overnight-intraday reversal strategy - generates for the US stock market an average excess return that is five times larger when compared to a conventional short-term reversal strategy. Our results remain robust to using international stocks as well as equity index, interest rate, commodity, and currency futures. We find that overnight-intraday reversals are consistent with the simulated patterns generated by the continuous-time model with periodic market closures of Hong and Wang (2000). Finally, we demonstrate that only intraday returns matter for the reversal-based liquidity measure of Pastor and Stambaugh (2003).

Keywords: Short-term reversal, Liquidity, Market closure

JEL Classification: G11, G12, G15, G20

Suggested Citation

Della Corte, Pasquale and Kosowski, Robert and Wang, Tianyu, Market Closure and Short-Term Reversal (November 30, 2015). Asian Finance Association (AsianFA) 2016 Conference. Available at SSRN: https://ssrn.com/abstract=2730304 or http://dx.doi.org/10.2139/ssrn.2730304

Pasquale Della Corte

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London, SW7 2AZ
United Kingdom
+44(0)20 759 49331 (Phone)

HOME PAGE: http://sites.google.com/view/pasqualedellacorte

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Robert Kosowski

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
+442075943294 (Phone)

HOME PAGE: http://www3.imperial.ac.uk/people/r.kosowski

CEPR (Centre for Economic Policy Research) ( email )

London
United Kingdom

HOME PAGE: http://www.cepr.org/

University of Oxford, Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

Unigestion UK

4 Stratford Place
London, W1C1AT
United Kingdom

Tianyu Wang (Contact Author)

Tsinghua University ( email )

Beijing, 100084
China

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