Intraday Patterns in the Cross-Section of Stock Returns

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.

Short‐term Return Predictability and Repetitive Institutional Net Order Activity

“…This enables us to track the order and trade activity of any group of traders, potentially providing us with insight into how their behaviors correlate with future returns. We also confirm that micro-momentum on the NSE is similar to the micro-momentum found in Heston, Korajczyk, and Sadka (2010), suggesting this phenomenon is not specific to U.S. markets. Furthermore, we find that micro-momentum on the NSE is robust to firm size, bid-ask bounce, trade volume, volatility, and net order imbalance, which are similar to the robustness checks in Heston, Korajczyk, and Sadka. In theory, an institutional investor who wants to minimize the execution costs associated with a large order will execute that order piecewise over time.…”

“…We find that the net order submission activity of repetitive institutional traders in one half-hour is predictive of the return in the same half-hour on the next day, but there is no significant relation for nonrepetitive institutional traders. We also find that the repeat trader significance subsumes the micro-momentum result of Heston, Korajczyk, and Sadka (2010) for the following day. This provides strong support for our hypothesis that the net order submission activity of institutional traders who trade across multiple days is an important driver of the micro-momentum phenomenon.…”

“…Taken together, these stylized facts imply that institutions may be systematically applying price pressure during the same periods across multiple days. Heston, Korajczyk, and Sadka (2010) make a similar conjecture, although they do not test it because of a lack of detailed institutional order data.…”

Intraday pricing of ETFs and certificates replicating the German DAX index

“…We specifically control for weekly and intradaily patterns because Harris (1986) and recently Heston et al (2010) empirically establish their influence for traded stocks.…”

Forecasting intraday S&P 500 index returns: A functional time series approach

“…However, recent studies have shown that forecasting intraday returns is possible. In relation to a cross-section of stocks, Heston, Korajczyk, and Sadka (2010) demonstrated a striking pattern of return continuation at half-hour intervals that were exact multiples of a trading day and noted that this effect can last for at least 40 trading days. In relation to intraday S&P 500 exchange-traded fund (ETF) momentum, Gao, Han, Li, and Zhou (2015) showed that first half-hour returns on the market predict last half-hour returns.…”