Understanding intraday momentum strategies. Issue 12 (8th September 2022)

• Record Type: Journal Article
• Authors: Rosa, Carlo
• Is Part Of: Journal of futures markets. Volume 42:Issue 12(2022)
• Page Start: 2218
• Page End: 2234
• Publication Date: 2022-09-08
• Subjects: high‐frequency trading -- intraday momentum -- systematic strategies -- US stock market; Commodity exchanges -- Periodicals; Foreign exchange futures -- Periodicals; 332.632
• DOI: 10.1002/fut.22375
• Languages: English
• ISSNs: 0270-7314

Abstract

Abstract: This paper studies the out‐of‐sample performance of the intraday momentum strategy where the overnight return predicts the return of the last half‐hour of trading. The predictability disappears in the out‐of‐sample period. A Markov‐switching model endogenously identifies two distinct regimes and suggests that the predictability depends on the strength of the signal. Hence, assessing return predictability in calendar time may lead to false conclusions when anomalies feature time‐varying returns. The paper documents that understanding the return dynamics is important for an effective strategy implementation. A strategy with thresholds delivers higher returns than a strategy that is always active.