45 Pages Posted: 16 Nov 2016 Last revised: 8 Jun 2017
Date Written: June 7, 2017
Using a thirty-year sample of U.S. stock returns, I document substantial cross-sectional variation in returns over the trading day and overnight. Market closures have a large impact on returns. Small and illiquid stocks earn high average returns in the last thirty minutes of trading. In contrast, large and liquid stocks perform poorly at this time. I find support for institutional and information asymmetry theories. But these theories do not fully explain the cross-sectional evidence. Portfolios based on other characteristics, such as beta and idiosyncratic volatility, earn their return gradually throughout the trading day–contrary to the market and a benchmark based on random portfolios. These portfolios also tend to incur large negative returns overnight, consistent with mispricing at the open.
Keywords: Intraday Returns, Overnight Returns, Asset Pricing Anomalies, Liquidity
JEL Classification: G10, G12, G14
Suggested Citation: Suggested Citation