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Intraday Patterns in the Cross-section of Stock Returns

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  • Steven L. Heston
  • Robert A. Korajczyk
  • Ronnie Sadka

Abstract

Motivated by the literature on investment flows and optimal trading, we examine intraday predictability in the cross-section of stock returns. We find a striking pattern of return continuation at half-hour intervals that are exact multiples of a trading day, and this effect lasts for at least 40 trading days. Volume, order imbalance, volatility, and bid-ask spreads exhibit similar patterns, but do not explain the return patterns. We also show that short-term return reversal is driven by temporary liquidity imbalances lasting less than an hour and bid-ask bounce. Timing trades can reduce execution costs by the equivalent of the effective spread.

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Bibliographic Info

Paper provided by arXiv.org in its series Papers with number 1005.3535.

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Date of creation: May 2010
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Publication status: Published in Forthcomming: Journal of Finance 65 (4), 2010 1369-1407
Handle: RePEc:arx:papers:1005.3535

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Cited by:
  1. Lerner, Peter, 2010. "Theoretical analysis of the bid-ask bounce and Related Phenomena," MPRA Paper 35929, University Library of Munich, Germany.
  2. Kervel, V.L. van, 2013. "Competition between stock exchanges and optimal trading," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5663709, Tilburg University.
  3. Pagano, Michael S. & Peng, Lin & Schwartz, Robert A., 2013. "A call auction's impact on price formation and order routing: Evidence from the NASDAQ stock market," Journal of Financial Markets, Elsevier, vol. 16(2), pages 331-361.

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