Intraday momentum and stock return predictability: Evidence from China

Abstract

Using the high-frequency data from the Chinese stock market, this paper documents an intraday momentum that the first and/or second-to-last (seventh) half-hour returns can significantly predict the last half-hour return both in- and out-of-sample. Furthermore, this intraday momentum yields substantial economic gains from both the asset allocation and market timing perspectives. The intraday momentum findings are not only theoretically explained by the trading behavior of infrequent rebalancing or late-informed investors, but also consistent with the empirical evidence of a U-shaped volume pattern and significantly more useful information contained in the first and seventh half-hour returns. Due to a 90-min lunch break in the Chinese stock market, we find that the market return in the morning also significantly predict the return in the afternoon.