Intraday Patterns in the Cross-Section of Stock Returns

Motivated by the literature on investment flows and optimal trading, this paper examines intraday predictability in the cross-section of stock returns. We confirm a well-known return reversal commonly associated with bid-ask bounce. Notably, we also find significant continuation of returns at half-hour intervals that are exact multiples of a trading day, and this effect lasts for forty trading days. Percentage changes in volume, order imbalance, and volatility exhibit similar patterns, but do not explain the return patterns. Additionally, bid/ask spreads do not explain the return pattern. The return continuation at daily frequencies is more pronounced for, but not restricted to, the first and last half-hour periods of the day. These effects are not driven by firm size, systematic risk premia, or inclusion in the S&P500 index. The pattern is robust to controlling for a number of documented types of periodicity. Our results suggest that traders may wish to time portfolio rebalancing to account for these persistent intraday patterns.