### Overnight/Intraday Return Reversal Trading

**April 13, 2016** - Technical Trading

What is the best way to exploit short-term asset return reversal? In their November 2015 paper entitled “Market Closure and Short-Term Reversal”, Pasquale Della Corte, Robert Kosowski and Tianyu Wang examine four short-term reversal strategies that are each day long (short) assets with below-average (above-average) past returns weighted according to the degree the returns are below (above) average. Portfolio long and short sides are therefore equal in size. Specifically, they assign portfolio weights/accrue portfolio returns based on:

- Prior close-to-open returns/next open-to-close returns (CO-OC).
- Prior close-to-close returns/next close-to-close returns (CC-CC).
- Prior open-to-close returns/next open-to-close returns (OC-OC).
- Prior open-to-open returns/next open-to-open returns (OO-OO).

For calculating portfolio profitability, they assume a 50% margin requirement. They apply the strategy to each of U.S. stocks, European (French and German) stocks, Japanese stocks, UK stocks, stock index futures, interest rate (bond) futures, commodity futures and currency futures. Using daily opens and closes for stocks since January 1993 and futures since July 1982, all through December 2014, *they find that:* Keep Reading