Hedging Demand and Market Intraday Momentum

60 Pages Posted: 26 Jan 2021 Last revised: 24 Nov 2021

See all articles by Guido Baltussen

Guido Baltussen

Erasmus University Rotterdam (EUR); Robeco Quantitative Investments

Zhi Da

University of Notre Dame - Mendoza College of Business

Sten Lammers

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Martin Martens

Erasmus University Rotterdam

Date Written: January 2, 2021

Abstract

edging short gamma exposure requires trading in the direction of price movements,thereby creating price momentum. Using intraday returns on over 60 futures on equities,bonds, commodities, and currencies between 1974 and 2020, we document strong “marketintraday momentum” everywhere. The return during the last 30 minutes before the marketclose is positively predicted by the return during the rest of the day (from previous marketclose to the last 30 minutes). The predictive power is economically and statistically highlysignificant, and reverts over the next days. We provide novel evidence that links marketintraday momentum to the gamma hedging demand from market participants such as marketmakers of options and leveraged ETFs.

Keywords: Return momentum, Futures trading, Hedging demand, Return Predictability, Indexing

JEL Classification: G12, G15, G40, Q02

Suggested Citation

Baltussen, Guido and Da, Zhi and Lammers, Sten and Martens, Martin, Hedging Demand and Market Intraday Momentum (January 2, 2021). Journal of Financial Economics (JFE), Volume 142, Issue 1, October 2021, Pages 377-403, Available at SSRN: https://ssrn.com/abstract=3760365 or http://dx.doi.org/10.2139/ssrn.3760365

Guido Baltussen (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3011 AG
Netherlands

Zhi Da

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

Sten Lammers

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Martin Martens

Erasmus University Rotterdam ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands
(+31)10-4088929 (Phone)

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