18 Pages Posted: 17 Sep 2010 Last revised: 5 Oct 2010
Date Written: September 16, 2010
In this brief research paper, I explore patterns in intraday return and volume correlation between the S&P 500 and sector indices, as represented by minutely data from Aug. 23 to Oct. 1 for the SPDR exchange-traded funds. Notably, there is evidence of two previously unreported time-of-day effects. First, there is a "U-shaped'' pattern in return correlation, characterized by higher correlation at open and close and lower correlation during mid-day hours. Second, volume correlation is marked by lower values in the morning and increasing values in the afternoon. In some cases, this trend even takes the infamous "hockey-stick'' shape, exhibiting stable values in the morning but sharply increasing values in the late afternoon. To ensure that these patterns are not a function of the choice of correlation window size, I confirm that these patterns are qualitatively stable over correlation windows ranging from 10 minutes to 90 minutes. These findings indicate that non-time-stationary patterns exist not only for volume and volatility, as previously reported, but also for the correlation of return and volume between the market and sector indices. These results have possible implications for intraday market efficiency and for trading strategies that rely on intraday time-stationarity of return or volume correlation.
Keywords: return correlation, volume correlation, intraday correlation, sector correlation
JEL Classification: C, C4, C8
Suggested Citation: Suggested Citation
Bommarito, Michael James, Intraday Correlation Patterns between the S&P 500 and Sector Indices (September 16, 2010). Available at SSRN: https://ssrn.com/abstract=1677915 or http://dx.doi.org/10.2139/ssrn.1677915
By Owen Humpage