What Drives Momentum and Reversal? Evidence from Day and Night Signals
41 Pages Posted: 29 Apr 2022
Date Written: March 29, 2022
News mostly drive overnight returns, whereas investors' trading mostly drives intraday returns. We use this fact to test theories of momentum and reversal with a sample of intraday and overnight return spanning 1926 to 2019. Portfolios formed on past intraday returns display short-term reversal and momentum without long-term reversal. In contrast, portfolios formed on past overnight returns display only long-term reversal. These results are consistent with underreaction theories of momentum, where investors underreact to the information conveyed by the trades of other investors.
Keywords: Momentum, Reversal, Intraday, Overnight, Underreaction
JEL Classification: G10
Suggested Citation: Suggested Citation