Determinants of the Component Structure of Intraday Return Distributions

20 Pages Posted: 6 Oct 2010

See all articles by Charlie X. Cai

Charlie X. Cai

University of Liverpool Management School

Kevin Keasey

University of Leeds - Division of Accounting and Finance

Gao-Liang Tian

Xi'an Jiaotong University (XJTU) - School of Management

Date Written: May 4, 2009

Abstract

There is existing evidence of equity returns having a mixture distribution with multiple component structures. Following the increasing interest in intraday trading, this article examines determinants of intraday equity return distributions and finds that greater information flow and stock liquidity reduce the number of components while greater heterogeneity amongst traders increases the number of components. These results show that when empirically modelling intraday return distributions allowance needs to be made for their time varying nature and the fact that they are conditional on the liquidity and information flow of a stock. In addition, the results reinforce the recent emphasis by market regulators on information flow and liquidity being key to increasing transparency and reducing uncertainty (multiple components in the return distribution).

Keywords: Return Distribution, Intraday, Information Flow, Liquidity, High-frequency Data, Market Microstructure.

JEL Classification: G10, G14, C16, C22

Suggested Citation

Cai, Charlie Xiaowu and Keasey, Kevin and Tian, Gao-Liang, Determinants of the Component Structure of Intraday Return Distributions (May 4, 2009). Applied Financial Economics, Vol. 20, No. 4, 2010. Available at SSRN: https://ssrn.com/abstract=1687016

Charlie Xiaowu Cai (Contact Author)

University of Liverpool Management School ( email )

University of Liverpool
Liverpool, L69 7ZA
United Kingdom

Kevin Keasey

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom
+44 (0)113 343 2618 (Phone)

Gao-Liang Tian

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

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