Intraday Momentum and Return Predictability: Evidence from the Crude Oil Market

35 Pages Posted: 7 May 2020

See all articles by Zhuzhu Wen

Zhuzhu Wen

affiliation not provided to SSRN

Gong Xu

Xiamen University

Diandian Ma

University of Auckland Business School

Yahua Xu

Central University of Finance and Economics (CUFE) - China Economics and Management Academy

Date Written: March 13, 2020

Abstract

Intraday return predictability has firstly been identified in the equity markets, and we extend the analysis to the crude oil market by using high-frequency United States Oil Fund data from 2006 to 2018. We find a different intraday prediction pattern in the oil market, where only the first half-hour returns positively predict the last half-hour returns. A market timing strategy based on the findings generates substantial profits. We further decompose the first half-hour return into the overnight and the open half-hour components, and find that the former contains more predictive information. Economic mechanisms of the infrequent portfolio rebalancing and the presence of late-informed investors explain our findings. Notably, unlike equity markets, the oil market exhibits a unique intraday trading volume pattern, caused by the release of two routine oil inventory announcements. However, the information contained in the inventory announcements does not offer predictability to the last half-hour returns.

Keywords: Intraday momentum, return predictability, crude oil market, market timing strategy

JEL Classification: G1; C5; Q3; Q4

Suggested Citation

Wen, Zhuzhu and Xu, Gong and Ma, Diandian and Xu, Yahua, Intraday Momentum and Return Predictability: Evidence from the Crude Oil Market (March 13, 2020). Available at SSRN: https://ssrn.com/abstract=3553682 or http://dx.doi.org/10.2139/ssrn.3553682

Zhuzhu Wen

affiliation not provided to SSRN

Gong Xu

Xiamen University ( email )

Xiamen, Fujian 361005
China

Diandian Ma

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

Yahua Xu (Contact Author)

Central University of Finance and Economics (CUFE) - China Economics and Management Academy ( email )

NO.39 South College Road
Haidian District
Beijing, 100081
China

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