Intraday return predictability: Evidence from commodity ETFs and their related volatility indices

Abstract

Using high-frequency data of crude oil, gold, and silver exchange-traded funds (ETFs) and their related volatility indices, we analyse patterns of intraday return predictability, also called intraday momentum, in each market. We find that intraday return predictability exists in all the markets, but the patterns of predictability differ for each market, with different half-hour returns, not necessarily the first half-hour returns of the trading day, exhibiting significant predictability for their last half-hour counterparts, depending on the specific market. The intraday return predictability is stronger on days of higher volatility and larger jumps. Substantial economic value can be generated by a market timing strategy which is constructed upon the intraday momentum, in all the markets under study. Possible theoretical explanations for the intraday return predictability are infrequent portfolio rebalancing investors and late-informed investors.

Price overreactions in the commodity futures market: An intraday analysis of the Covid-19 pandemic impact

“…According to Ouyang and Zhang (2020) , speculation is also an important driving factor of commodity prices. Based on high-frequency data, Xu et al (2020) show the presence of intraday return predictability for commodity ETFs. This result is also confirmed by the study of Zhang et al (2020b) who demonstrate that intraday momentum exists in Chinese commodity futures markets.…”

The Profitability of Technical Analysis during the COVID-19 Market Meltdown

“…In a related paper, Xu et al (2020) found predictability in the volatility indices of commodity exchange-traded funds, especially on days with higher volatility and larger jumps. It is important to note that volatility indices cannot be traded directly, but by constructing a portfolio of options that replicates the volatility index.…”

On the connectedness of commodity markets: A critical and selective survey of empirical studies and bibliometric analysis

“…They imply that the Prebisch-Singer (PS) hypothesis, which contends that (log) relative commodity prices are steadily dropping over time, is the only explanation for the long-run increase in commodity prices. Bouri et al (2021) and Xu et al (2020) investigate the high-frequency connectedness of commodity markets and identify factors that explain it. Xu et al (2020) postulate that there are two theoretical explanations for the interconnectivity of the commodity market.…”

“…Bouri et al (2021) and Xu et al (2020) investigate the high-frequency connectedness of commodity markets and identify factors that explain it. Xu et al (2020) postulate that there are two theoretical explanations for the interconnectivity of the commodity market. The first relates portfolio rebalancing model of Bogousslavsky (2016), which indicates theoretically that certain traders choose to delay portfolio rebalancing until the market closure instead of trading immediately when a successful signal is delivered, resulting in a positive correlation.…”