Overnight momentum, informational shocks, and late informed trading in China

Abstract

Based on high-frequency firm-level data, this paper uncovers new empirical patterns on intraday momentum in China. First, there exists a strong intraday momentum effect at the firm level. Second, the intraday predictability stems mainly from the overnight component rather than the opening half-hour component, which is consistent with the microstructure features of the Chinese market. Third, the intraday predictability attenuates (strengthens) following large positive (negative) informational shocks, implying a striking asymmetric reaction by market participants. Finally, we document that late-informed traders are relatively less experienced or skilful. Overall, the empirical results lend support to the model of late-informed trading.

Intraday Return Predictability in the Crude Oil Market: The Role of EIA Inventory Announcements

“…As such, p i,t denotes the ith half-hour price on day t. As p 0,t , we use the previous trading day's closing price, which is at 16:00 for USO. This is consistent with many other intraday momentum studies (see, e.g., Gao et al, 2018Gao et al, , 2019Wen et al, 2020). As a result, the first half-hour return, r 1,t , is calculated as the (log) difference between the price at 10:00 and the closing price at 16:00 the previous trading day.…”

“…Second, we show that the predicting source of the first half-hour returns on non-EIA days comes from the overnight component, the return between the price at market open and the previous day's price at market close. This finding adds to the understanding of the role of overnight returns in intraday momentum, which is the main source of prediction in a normal mar-ket state (e.g., Gao et al, 2019) but not in particular contexts, such as during EIA announcements. Third, we explore the theoretical mechanisms in the different predictive sources in third half-hour returns by connecting them to informed trading and liquidity provision, respectively.…”

Intraday time‐series momentum: Evidence from China

“…The use of half‐hour returns is in line with earlier studies on intraday time‐series momentum in financial markets (Gao et al, ; Gao, Xing, Youwei, & Xiong, , Komarov, ; Sun et al, ). However, can intraday time‐series momentum also be observed at other time frequencies?…”

Intraday Time-series Momentum: Evidence from China

“…The use of half-hour returns is in line with earlier studies on intraday time-series momentum in financial markets (Gao et al, 2018;Gao et al, 2019, Sun et al, 2016Komarov, 2017).…”