Intraday overreaction and underreaction: profitability analysis and factor explanations

Adnan Ahmed Siddiqui () and Arun Kumar Misra ()
Additional contact information
Adnan Ahmed Siddiqui: Aliah University
Arun Kumar Misra: Indian Institute of Technology Kharagpur

Journal of Asset Management, 2025, vol. 26, issue 5, No 6, 523-534

Abstract: Abstract This study examines the impact of high-frequency trading patterns on daily returns in the Indian market, which has witnessed exceptional retail intraday trading. Intraday underreaction and overreaction are estimated using a novel measure of efficiency, speed of price adjustment to information, which is robust against non-trading bias. The results show a significant and positive relationship between intraday overreaction and next-day daily returns. The speed of price adjustment factor, with intraday overreaction as the long leg and intraday underreaction as the short leg carries a positive premium. Furthermore, this premium cannot be explained by market, size, value, momentum, or illiquidity factors. This factor also explains the returns of one-fourth of the portfolios in twenty-five size-value sorted portfolios within the Fama-French test framework. Several versions of these strategies consistently show that intraday overreactions are always more profitable than underreactions. The findings are highly relevant for short-term traders and investment managers.

Keywords: Intraday overreaction; Intraday underreaction; Speed of price adjustment; HFT patterns (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1057/s41260-025-00418-y Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:assmgt:v:26:y:2025:i:5:d:10.1057_s41260-025-00418-y

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41260

DOI: 10.1057/s41260-025-00418-y

Access Statistics for this article

Journal of Asset Management is currently edited by Marielle de Jong and Dan diBartolomeo

More articles in Journal of Asset Management from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().