Index-based Investing and Intraday Stock Dynamics

50 Pages Posted: 9 Nov 2020 Last revised: 16 Sep 2021

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 the implications of index-based investing on intraday stock dynamics using a large high-frequency data set, which consists of trade prices sampled every five seconds for all S&P 500 constituents from 2004 to 2019. We estimate multiple aspects of intraday stock dynamics, including trading volume, volatility, correlation, and beta using estimators that are efficient in the high-frequency setting. We find informative intraday patterns that evolve over time. For example, in the recent decade, the correlation and trading volume increase substantially at the end of trading session; the betas of stocks converge towards one during the day. We show these patterns can be attributed to a ''firm-specific open, index-based close'' intraday trading profile. We theoretically support our findings via a market impact model with time-varying informational shocks and trading demands from single-stock and index investors.

Keywords: index-based investing, intraday stock dynamics, high-frequency data, market impact model

JEL Classification: G11, G12

Suggested Citation

Shen, Yiwen and Shi, Meiqi, Index-based Investing 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

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

Paper statistics

Downloads
606
Abstract Views
2,283
rank
62,363
PlumX Metrics