Intraday and Overnight Return Momentum and Reversal Signals

Do intraday (open-to-close, trading-driven/technical) and overnight (close-to-open, news-driven) stock returns play different roles in signaling short-term reversal, intermediate-term momentum and long-term reversion? In their March 2022 paper entitled “What Drives Momentum and Reversal? Evidence from Day and Night Signals”, Yashar Barardehi, Vincent Bogousslavsky and Dmitriy Muravyev investigate by relating past cumulative daily, intraday and dividend-adjusted overnight returns over various lookback intervals to future returns. The lookback intervals they consider are:

• For reversal: last month.
• For momentum: from seven or 12 months ago to one month ago.
• For reversion: from 36, 48 or 60 months ago to 12 months ago.

They measure reversal, momentum and reversion effects via monthly gross 3-factor (market, size, book-to-market) alphas of hedge portfolios that are each month long (short) the extreme tenth, or decile, of stocks with the highest (lowest) past returns. Using the specified inputs for a narrow sample of U.S. common stocks during January 1926 through December 1962, and for a broad sample of U.S. common stocks during January 1963 through December 2019, they find that: (more…)