Research reveals that characteristics-sorted stock portfolios have opposing overnight and intraday predicted returns. This strange phenomenon is caused by diverse arbitrageurs competing. “Fast” arbitrageurs with informational advantages compete with “slow” arbitrageurs with low inventory costs to set liquidity pricing. High information asymmetry during market opening allows rapid arbitrageurs to demand large price variances, deterring slow arbitrageurs. As cream-skimming risk decreases, price deviations decrease, leading to opposite-signed overnight and intraday returns.

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