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 heterogeneity, sentiment, market uncertainty and market-wide illiquidity 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 can predict the strategy returns in every asset class. A global two-factor model, consisting of the market and overnight-intraday reversal factor, well explains the intraday return variation of diversified portfolios across asset classes.

Keywords: Overnight-Intraday Reversal Everywhere Overnight return, Intraday return, Short-term reversal, Liquidity provision JEL Classification: G11, G12, G15, G20

JEL Classification: G11, G12, G15, G20