A Study of Intraday Returns

Abstract

To examine the time-series predictability of intraday stock returns, I generate winners and losers according to their hourly returns and compare their post performance within the same trading day for large and small NYSE stock samples separately. The empirical results suggest distinctly different intraday return patterns exist for these two samples. The large stock sample shows a momentum-reversal pattern, that is, winners will outperform losers for about one and half hours and then underperform them. However, for small stocks, I observe a continued-momentum intraday return pattern, which implies that the momentum lasts through the observation period and no reversal occurs. I also find that in both samples the momentum profit based on the winners and losers generated in the morning is more pronounced than that based on the winners and losers generated at noon. The empirical patterns found above may be caused by underreaction or liquidity-driven mechanism. The difference between large and small stock samples indicates that large stocks may have a faster speed when reacting to new information and achieving market efficiency than small stocks.