What Drives Momentum and Reversal? Evidence from Day and Night Signals

54 Pages Posted: 29 Apr 2022 Last revised: 6 Feb 2023

See all articles by Yashar H. Barardehi

Yashar H. Barardehi

Chapman University - The George L. Argyros College of Business and Economics; U.S. Securities and Exchange Commission

Vincent Bogousslavsky

Boston College - Department of Finance

Dmitriy Muravyev

Michigan State University - Department of Finance; Canadian Derivatives Institute

Date Written: February 6, 2023

Abstract

Overnight returns are mostly driven by news, whereas intraday returns are mostly driven by investors' trading. We use this fact to test theories of momentum and reversal with a sample of intraday and overnight returns 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

Barardehi, Yashar and Bogousslavsky, Vincent and Muravyev, Dmitriy, What Drives Momentum and Reversal? Evidence from Day and Night Signals (February 6, 2023). Available at SSRN: https://ssrn.com/abstract=4069509 or http://dx.doi.org/10.2139/ssrn.4069509

Yashar Barardehi

Chapman University - The George L. Argyros College of Business and Economics ( email )

1 University Drive
Orange, CA 92866
United States

HOME PAGE: http://sites.google.com/site/barardehi/

U.S. Securities and Exchange Commission ( email )

Vincent Bogousslavsky (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

Dmitriy Muravyev

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

Canadian Derivatives Institute ( email )

3000, chemin de la Côte-Sainte-Catherine
Montréal, Québec H3T 2A7
Canada

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