The Intra-Day Stock Return Periodicity Puzzle
A new study finds that the unusual pattern where stock returns repeat at the same half-hour each day has lasted through 2020. Institutional trading, especially strategies like VWAP (Volume-Weighted Average Price) at the open and market-on-close trades, explains most of this pattern except at the close, where only 10-30 percent is accounted for. Retail trading and news have little effect. The cause of the closing-period pattern remains unclear, raising questions about other market forces.
What it examines
This paper studies persistent patterns in stock returns within each trading day, focusing on why returns repeat at the same times across days. Using data from 2012 to 2020, it tests explanations like trading frictions, institutional and retail trading, and news, aiming to solve the intra-day periodicity puzzle.
What it concludes
Institutional trading, especially VWAP and market-on-close strategies, explains most intra-day return patterns except at the close, which remains puzzling. These findings help improve trading algorithms, risk management, and market efficiency. Future research should further explore closing-period patterns and the role of index funds in market behavior.
Evidence objects
A decade-long study finds intra-day periodicity in stock returnswhere returns repeat in the same half-hour interval across dayshas persisted from 2010 to 2020, defying expectations of market efficiency.
key_findings bullet 1 · key_findings · validation V0
Institutional trading, especially VWAP at the open and market-on-close at the close, explains most periodicity at the open, mid-day, and overnight, but only 10--30% at the close, leaving mysteries unsolved.
key_findings bullet 2 · key_findings · validation V0
Surprisingly, retail trading and news events play minor roles, while trading frictions like illiquidity and short-selling costs dont fully explain the puzzle; algorithmic tradings impact remains an open question for future research.
key_findings bullet 3 · key_findings · validation V0
This paper compellingly extends Heston et al. (2010) by rigorously confirming persistent intra-day return periodicity out-of-sample (2012--2020) across NYSE and NASDAQ. Its novelty lies in systematically testing diverse explanatory variables and quantifying their impact, offering a thorough empirical decomposition. This robust analysis is highly relevant for trading strategy design.
key_findings bullet 4 · key_findings · validation V0
Raw abstract and provenance
- … , including trading frictions and proxies for trader type. They … Our proxies for institutional trading — changes in … by VWAP trading while close periodicity by market-on-close …
Source row: 1961 · abstract type: snippet