Intraday Variation in Cross-sectional Stock Comovement and Impact of Index-based Strategies

45 Pages Posted: 9 Nov 2020 Last revised: 30 Jan 2023

See all articles by Yiwen Shen

Yiwen Shen

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management

Meiqi Shi

University of California, Berkeley - Haas School of Business

Date Written: June 21, 2020

Abstract

We investigate how stock comovement changes during a day using a large high-frequency data set of S&P 500 stocks and estimators that are efficient in the high-frequency setting. We measure cross-sectional stock comovement by average pairwise correlation and cross-sectional dispersion in beta. Both measures exhibit substantial intraday variation. In the recent decade, the stock correlation increases across the trading session, while the cross-sectional beta dispersion decreases. These patterns suggest that stocks exhibit stronger comovement near the market close. We explain the time-varying stock comovement by the intraday variation in the composition of index-based and firm-based strategies, providing new evidence for the demand-based view of comovement. We empirically support this mechanism using intraday trading volume and change in comovement pattern on unusual trading days. Finally, we develop a cross-section market impact model that generates the observed intraday variation.

Keywords: intraday stock comovement, index-based investing, market microstructure, highfrequency estimation, big data

JEL Classification: G11, G12

Suggested Citation

Shen, Yiwen and Shi, Meiqi, Intraday Variation in Cross-sectional Stock Comovement and Impact of Index-based Strategies (June 21, 2020). Available at SSRN: https://ssrn.com/abstract=3696124 or http://dx.doi.org/10.2139/ssrn.3696124

Yiwen Shen (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management ( email )

Clear Water Bay
Kowloon
Hong Kong

Meiqi Shi

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
677
Abstract Views
2,523
Rank
58,985
PlumX Metrics