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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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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. George Tannous & Juan Wang & Craig Wilson, 2013. "The Intraday Pattern of Information Asymmetry, Spread, and Depth: Evidence from the NYSE," International Review of Finance, International Review of Finance Ltd., International Review of Finance Ltd., vol. 13(2), pages 215-240, 06.
  2. Kervel, V.L. van, 2013. "Competition between stock exchanges and optimal trading," Open Access publications from Tilburg University, 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, Elsevier, vol. 16(2), pages 331-361.
  4. Lerner, Peter, 2010. "Theoretical analysis of the bid-ask bounce and Related Phenomena," MPRA Paper 35929, University Library of Munich, Germany.

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