Most of the studies on time-series momentum have been performed in the daily, weekly, and monthly timeframes. Relatively less research has been conducted in the intraday timeframe. So naturally, we would ask the question: Does the momentum exist intraday?
Reference [1] answers this question. It examined the time-series momentum of the SP500 index in the intraday timeframe. The article concluded that momentum indeed exists intraday. Specifically, the authors pointed out that the first half-hour return on the market since the previous day’s market close predicts the last half-hour return.
Our paper documents that the market return in the first half-hour predicts the market return in the last half-hour. This intraday predictability is statistically significant both in- and out- of-sample. In terms of market timing and asset allocation, the economic gains of using the predictability are substantial.
They also found that the return predictability is stronger on high-volatility days. Further, the time-series momentum exists not only in the SP500 index but also in other broad market and sector indices.
We also find that the market intraday momentum is stronger on high volatility days, high trading volume days, recession days, and important economic news (MCSI, GDP, CPI, FOMC) release days. Moreover, the intraday momentum is strong not only for the S&P 500 ETF, but also for ten other most actively traded ETFs. Theoretically, the market intraday momentum is consistent with the trading behavior of investors who either infrequently rebalance their portfolios, or trade late from early information.
The implication of this article is useful not only for high-frequency traders but also for options and portfolio risk managers. Since the SP500 index is highly correlated with the volatility index, i.e. VIX, one can use the results of this article to design better options trading and hedging strategies.
Finally, based on our experience, we believe that the intraday time-series momentum also exists in other markets than equities such as commodities and interest rates.
References
[1] L Gao, Y Han, SZ Li, G Zhou, Market intraday momentum, Journal of Financial Economics, 129, 394-414, 2018
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