The Cross-Section of Intraday and Overnight Returns
46 Pages Posted: 16 Nov 2016 Last revised: 10 Dec 2019
Date Written: December 9, 2019
I investigate cross-sectional variation in stock returns over the trading day and overnight to shed light on what drives asset pricing anomalies. Lending fees are typically charged only on positions held overnight. Such institutional constraints and overnight risk incentivize arbitrageurs who trade on mispricing to close their positions before the end of the day. Consistent with this intuition, a mispricing factor earns positive returns throughout the day but performs poorly at the end of the day. This pattern strengthens in recent years and is shared by several well-known anomalies, such as profitability.
Keywords: Intraday Returns, Overnight Returns, Asset Pricing Anomalies, Mispricing
JEL Classification: G10, G12, G14
Suggested Citation: Suggested Citation