Index-based Strategies and Intraday Stock Dynamics

51 Pages Posted: 9 Nov 2020 Last revised: 15 Jul 2022

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 index-based strategies affect intraday stock dynamics using a large high-frequency data set of S&P 500 stocks (9.3 billion observations) and estimators that are efficient in the high-frequency setting. Informative intraday patterns are found. In the recent decade, trading volume tilts toward market end; stock correlation increases during the day; cross-sectional beta dispersion decreases. These patterns can be explained by a ``firm-specific open, index-based close'' trading profile, which is based on time-varying informational shocks and trading demands from index-based strategies. We provide further evidence for this mechanism, including a market impact model that generates the observed patterns.

Keywords: market microstructure, index-based investing, intraday stock dynamics, high-frequency estimation, big data

JEL Classification: G11, G12

Suggested Citation

Shen, Yiwen and Shi, Meiqi, Index-based Strategies and Intraday Stock Dynamics (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

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