The Cross-Section of Intraday and Overnight Returns
49 Pages Posted: 16 Nov 2016 Last revised: 16 Feb 2021
Date Written: July 14, 2020
I investigate cross-sectional variation in stock returns over the trading day and overnight to shed light on what drives asset pricing anomalies. Margin requirements are higher overnight, and lending fees are typically charged only on positions held overnight. Such institutional constraints and overnight risk incentivize arbitrageurs who trade on mispricing to reduce 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 the second half of the sample and is shared by several well-known anomalies.
Keywords: Intraday Returns, Overnight Returns, Asset Pricing Anomalies, Mispricing
JEL Classification: G10, G12, G14
Suggested Citation: Suggested Citation