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Intraday Patterns in the Cross-section of Stock Returns

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

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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File URL: http://arxiv.org/pdf/1005.3535
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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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