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Intraday Market-Wide Ups/Downs and Returns Analysis

Last Updated on 10 February, 2024 by Rejaul Karim

The paper “Intraday Market-Wide Ups/Downs and Returns” by Wei Zhang, Shen Lin, and Yongjie Zhang analyzes the relationship between early intraday market-wide up and down movements and subsequent intraday returns within the same trading day.

Drawing on data from the Chinese and U.S. stock markets spanning 16 years and 3 years, respectively, the study develops two intraday market-wide up/down indicators based on index returns and the proportional differences in the number of stocks moving upwards to downwards at each minute. The findings reveal a robust positive correlation between these intraday indicators and subsequent market index returns.

Moreover, the authors demonstrate that intraday trading strategies leveraging this relationship can yield monthly returns of 4.1% in the Chinese market and 2.8% in the U.S. market. The strategies appear more profitable in markets with a higher presence of individual investors.

These results suggest that early intraday market-wide movements can impact the sentiment of retail investors, leading to market fluctuations within the same trading day.

Abstract Of Paper

Using stock market data over 16 years for Chinese stock markets and over 3 years for U.S. stock markets, this study explores the explanatory power of early intraday market-wide up and down movements to the subsequent intraday returns within the same trading day. As compared to the closing of the previous trading day, we introduce two intraday market-wide up/down indicators in terms of the index return and the proportional difference in the numbers of stocks moving upwards to downwards at each minute. A time series analysis shows an economically and statistically significant positive relation between the intraday indicators and the subsequent intraday returns of the market indices. Intraday trading strategies that exploit this intraday relationship lead to monthly returns of 4.1% in the Chinese market and 2.8% in the U.S. market. In addition, the strategies are more profitable in markets with high activity of individual investors (i.e., high trading value, low trading volume per transaction, small-cap, high B/M ratio, low institutional ownership, low price, and high number of shareholders). The results indicate that simple intraday market-wide up/down movements in the earlier trading affect the sentiment of retail investors, resulting in market movements in the same direction within the trading day.

Original paper – Download PDF

Here you can download the PDF and original paper of Intraday Market-Wide Ups/Downs and Returns.

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Author

Wei Zhang
Tianjin University – College of Management and Economics

Shen Lin
Tianjin University – College of Management and Economics; PBCSF, Tsinghua University

Yongjie Zhang
Tianjin University

Conclusion

In conclusion, the research paper “Intraday Market-Wide Ups/Downs and Returns” by Wei Zhang, Shen Lin, and Yongjie Zhang provides valuable insights into the relationship between early intraday market-wide movements and subsequent intraday returns within the same trading day.

The study establishes a strong positive correlation between intraday indicators and subsequent market index returns, employing long-term data from the Chinese and U.S. stock markets.

Additionally, the analysis demonstrates the potential profitability of intraday trading strategies that capitalize on this relationship, with monthly returns of 4.1% in the Chinese market and 2.8% in the U.S. market. These strategies prove to be more effective in markets influenced predominantly by individual investors.

Overall, the findings indicate that simple intraday market-wide movements have a significant impact on retail investor sentiment, eventually leading to market shifts in the same direction within the trading day.

Related Reading:

Losers Win, Winners Lose: Evidence Against Market Efficiency

Technical Analysis with a Long Term Perspective: Trading Strategies and Market Timing Ability

FAQ

Q1: What is the main focus of the research paper, “Intraday Market-Wide Ups/Downs and Returns,” and what does it explore regarding intraday market movements?

The paper analyzes the relationship between early intraday market-wide up and down movements and subsequent intraday returns within the same trading day. It investigates the impact of these early intraday movements on market sentiment and their role in influencing intraday returns.

Q2: How does the study measure intraday market-wide up/down movements, and what is the key finding regarding their correlation with subsequent intraday returns?

The study introduces two intraday market-wide up/down indicators based on index returns and the proportional differences in the number of stocks moving upwards to downwards at each minute. The key finding is a robust positive correlation between these intraday indicators and subsequent market index returns. This suggests that early intraday movements have predictive power for intraday returns.

Q3: What are the implications for intraday trading strategies, and how profitable are they according to the study?

The research demonstrates that intraday trading strategies leveraging the relationship between early intraday market-wide movements and subsequent returns can yield monthly returns of 4.1% in the Chinese market and 2.8% in the U.S. market. The profitability of these strategies is influenced by the level of activity of individual investors in the market, with higher activity leading to more profitable outcomes.

You can find many more Research Papers here

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