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Intraday overreaction and underreaction: profitability analysis and factor explanations

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  • Adnan Ahmed Siddiqui

    (Aliah University)

  • Arun Kumar Misra

    (Indian Institute of Technology Kharagpur)

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.

Suggested Citation

  • Adnan Ahmed Siddiqui & Arun Kumar Misra, 2025. "Intraday overreaction and underreaction: profitability analysis and factor explanations," Journal of Asset Management, Palgrave Macmillan, vol. 26(5), pages 523-534, September.
    • Handle: RePEc:pal:assmgt:v:26:y:2025:i:5:d:10.1057_s41260-025-00418-y
    DOI: 10.1057/s41260-025-00418-y
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