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

41 Pages Posted: 29 Apr 2022

See all articles by Yashar H. Barardehi

Yashar H. Barardehi

Chapman University - The George L. Argyros School of Business & 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: March 29, 2022

Abstract

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

Barardehi, Yashar and Bogousslavsky, Vincent and Muravyev, Dmitriy, What Drives Momentum and Reversal? Evidence from Day and Night Signals (March 29, 2022). 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 School of Business & Economics ( email )

333 N. Glassell
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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