Intraday Patterns in the Cross-section of Stock Returns

TL;DR

This paper uncovers persistent intraday return patterns at specific intervals linked to trading days, driven by liquidity factors, and demonstrates how timing trades can reduce costs.

Contribution

It reveals a novel intraday return pattern at half-hour intervals multiple days long, not explained by volume or spreads, and links it to liquidity imbalances and bid-ask bounce.

Findings

Return continuation at half-hour multiples of trading days persists for 40 days.

Volume, order imbalance, volatility, and spreads do not explain return patterns.

Timing trades can significantly reduce execution costs.

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.