Do stocks with high (low) overnight returns underperform (outperform) over the longer-term?

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Do stocks with high (low) overnight returns underperform (outperform) over the longer-term?

edited

Seeking Help Getting Started Alphalens

Hello,

I rewrote my question to make it more clear. Please find the new text below:

I am new to Quantopian and I am trying to study my first factor using alphalens.

I started from this paper + the following statement:

Stocks with high (low) overnight returns underperform (outperform) over the longer-term.

To build my factor I use a smoothed sum of cumulative overnight returns over a week.

Alphalens says that the annualized alpha is slightly positive (almost zero) and:

Mean period-wise returns by factor quantile look increasing and almost monotonic.
Cumulative returns by quantile diverge as they should.
Rank Information Criterion in 20 days is positive and statistically significant

What should we normally do in a situation like this? Should we keep working on the factor because it has positive Rank IC? Should we discard factors immediately if Rank IC is zero? Is there something we can do in order to improve the quality of this factor?

Thanks in advance.

2 responses

Brooks Woolfolk

Hey Mirko,

Not sure if I necessarily understand your question, but if you were to post the source code or notebook to give some additional context I think you'll receive a much more directed solution.

Hello, I have just rewritten my question to make it clearer.

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.

In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.