What Drives Momentum and Reversal? Evidence from Day and Night Signals

Department: Finance

Speaker: Vincent Bogousslavsky (Boston College) 

Room: T020

Abstract

Overnight returns are mostly driven by news, whereas intraday returns are mostly
driven by investors’ trading. We use this fact to test theories of momentum and reversal
with a sample of intraday and overnight returns spanning 1926 to 2019. Portfolios
formed on past intraday returns display short-term reversal and momentum without
long-term reversal. In contrast, portfolios formed on past overnight returns display
only long-term reversal. These results are consistent with underreaction theories of
momentum, where investors underreact to the information conveyed by the trades of
other investors.