4‐Factor Model for Overnight Returns. Issue 79 (September 2015)

• Record Type: Journal Article
• Authors: Kakushadze, Zura
• Is Part Of: Wilmott. Volume 2015:Issue 79(2015:Sep.)
• Page Start: 56
• Page End: 63
• Publication Date: 2015-09
• Subjects: Finance -- Periodicals; Financial services industry -- Periodicals; 332
• DOI: 10.1002/wilm.10448
• Languages: English
• ISSNs: 1540-6962

Abstract

<abstract abstract-type="main" id="wilm10448-abs-0001"> <title> <x xml:space="preserve">Abstract</x> </title> <p>We propose a 4‐factor model for overnight returns and give explicit definitions of our 4 factors.¹ Long‐horizon fundamental factors such as value and growth lack predictive power for overnight (or similar short‐horizon) returns and are not included. All 4 factors are constructed based on intraday price and volume data and are analogous to size (price), volatility, momentum, and liquidity (volume). Historical regressions à la Fama and MacBeth (1973) suggest that our 4 factors have sizable serial t‐statistic and appear to be relevant predictors for overnight returns. We check this by using our 4‐factor model in an explicit intraday mean‐reversion alpha.</p> </abstract>