Intraday Drifts

Abstract

Equity prices often reverse themselves immediately following large price drops within the same day, but drifting farther upward after large price increases. The significant positive returns (reversals or drifts) do not appear to be quote-driven or an artifact of specialists' market-making behavior, nor can they be explained by an increase in the rise of the stocks. Additionally, the fact that trading lessens significantly after initial large price changes is inconsistent with the increased trading triggered by technical rules. The evidence in this article indicates that investors require a risk premium for the uncertainty of new information arrival. Stocks typically associated with poor quality of information (such as value stocks, low-priced stocks, small stocks, trending stocks, and volatile stocks) exhibit a stronger tendency to produce successive positive returns after an initial price shock.