A tug of war: Overnight versus intraday expected returns

Dong Lou, Christopher Polk and Spyros Skouras

Journal of Financial Economics, 2019, vol. 134, issue 1, 192-213

Abstract: We link investor heterogeneity to the persistence of the overnight and intraday components of returns. We document strong overnight and intraday firm-level return continuation along with an offsetting cross-period reversal effect, all of which lasts for years. We look for a similar tug of war in the returns of 14 trading strategies, finding in all cases that profits are either earned entirely overnight (for reversal and a variety of momentum strategies) or entirely intraday, typically with profits of opposite signs across these components. We argue that this tug of war should reduce the effectiveness of clienteles pursuing the strategy. Indeed, the smoothed spread between the overnight and intraday return components of a strategy generally forecasts time variation in that strategy’s close-to-close performance in a manner consistent with that interpretation. Finally, we link cross-sectional and time-series variation in the decomposition of momentum profits to a specific institutional tug of war.

Keywords: Anomalies; Overnight returns; Intraday returns; Investor clienteles (search for similar items in EconPapers)
JEL-codes: G02 G12 G23 N22 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (70)

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Working Paper: A tug of war: overnight versus intraday expected returns (2019)
Working Paper: A tug of war: overnight versus intraday expected returns (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:134:y:2019:i:1:p:192-213

DOI: 10.1016/j.jfineco.2019.03.011

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