Heterogeneous liquidity providers and night-minus-day return predictability

• 成果类型: Article
• 署名作者: Lu, Zhongjin; Malliaris, Steven; Qin, Zhongling
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2023.03.002
• 发表日期: 2023
• 页码: 175-200
• 关键词: Fast and slow arbitrageurs; Return predictability; Overnight and intraday returns; Endogenous limited participation; liquidity provision

摘要

We present and test a model to understand the puzzling fact that characteristics-sorted stock portfolios tend to earn opposite-signed overnight and intraday expected returns. Het-erogeneous arbitrageurs - fast arbitrageurs with informational advantages and slow ar-bitrageurs with low inventory costs - compete to determine the price of liquidity. High in-formation asymmetry around market open allows fast arbitrageurs to demand large price deviations for absorbing order imbalances, as cream-skimming risk discourages competi-tion from slow arbitrageurs. Despite persistent order imbalances, these deviations attenu-ate when cream-skimming risk subsides, leading to opposite-signed overnight and intra-day returns. Our model identifies novel determinants that empirically explain substantial variations in predictable overnight-minus-intraday returns.(c) 2023 Elsevier B.V. All rights reserved.