Market Predictability Before the Closing Bell Rings
This study examines the predictability of the last 30 min of intraday stock price movements within the US financial market. The analysis encompasses several potential explanatory variables, including returns from each 30 min intraday trading session, overnight returns, the federal reserve fund rate...
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MDPI AG
2024-11-01
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| Series: | Risks |
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| Online Access: | https://www.mdpi.com/2227-9091/12/11/180 |
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| author | Lu Zhang Lei Hua |
| author_facet | Lu Zhang Lei Hua |
| author_sort | Lu Zhang |
| collection | DOAJ |
| description | This study examines the predictability of the last 30 min of intraday stock price movements within the US financial market. The analysis encompasses several potential explanatory variables, including returns from each 30 min intraday trading session, overnight returns, the federal reserve fund rate decision days and the subsequent three days, the US dollar index, month effects, weekday effects, and market volatilities. Market-adaptive trading strategies are developed and backtested on the basis of the study’s insights. Unlike the commonly employed multiple linear regression methods with Gaussian errors, this research utilizes a Bayesian linear regression model with Student-<i>t</i> error terms to more accurately capture the heavy tails characteristic of financial returns. A comparative analysis of these two approaches is conducted and the limitations inherent in the traditionally used method are discussed. Our main findings are based on data from 2007 to 2018. We observed that well-studied factors such as overnight effects and intraday momentum have diminished over time. Some other new factors were significant, such as lunchtime returns during boring days and the tug-of-war effect over the days after a federal fund rate change decision. Ultimately, we incorporate findings derived from data spanning 2022 to 2024 to provide a contemporary perspective on the examined components, followed by a discussion of the study’s limitations. |
| format | Article |
| id | doaj-art-e56d37f080b04f7da9acb0473085c9d3 |
| institution | Kabale University |
| issn | 2227-9091 |
| language | English |
| publishDate | 2024-11-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Risks |
| spelling | doaj-art-e56d37f080b04f7da9acb0473085c9d32024-11-26T18:20:37ZengMDPI AGRisks2227-90912024-11-01121118010.3390/risks12110180Market Predictability Before the Closing Bell RingsLu Zhang0Lei Hua1Department of Statistics & Actuarial Science, Northern Illinois University, DeKalb, IL 60115, USADepartment of Statistics & Actuarial Science, Northern Illinois University, DeKalb, IL 60115, USAThis study examines the predictability of the last 30 min of intraday stock price movements within the US financial market. The analysis encompasses several potential explanatory variables, including returns from each 30 min intraday trading session, overnight returns, the federal reserve fund rate decision days and the subsequent three days, the US dollar index, month effects, weekday effects, and market volatilities. Market-adaptive trading strategies are developed and backtested on the basis of the study’s insights. Unlike the commonly employed multiple linear regression methods with Gaussian errors, this research utilizes a Bayesian linear regression model with Student-<i>t</i> error terms to more accurately capture the heavy tails characteristic of financial returns. A comparative analysis of these two approaches is conducted and the limitations inherent in the traditionally used method are discussed. Our main findings are based on data from 2007 to 2018. We observed that well-studied factors such as overnight effects and intraday momentum have diminished over time. Some other new factors were significant, such as lunchtime returns during boring days and the tug-of-war effect over the days after a federal fund rate change decision. Ultimately, we incorporate findings derived from data spanning 2022 to 2024 to provide a contemporary perspective on the examined components, followed by a discussion of the study’s limitations.https://www.mdpi.com/2227-9091/12/11/180intraday momentumovernight returnstrading strategiesfinancial marketsBayesian linear regression |
| spellingShingle | Lu Zhang Lei Hua Market Predictability Before the Closing Bell Rings Risks intraday momentum overnight returns trading strategies financial markets Bayesian linear regression |
| title | Market Predictability Before the Closing Bell Rings |
| title_full | Market Predictability Before the Closing Bell Rings |
| title_fullStr | Market Predictability Before the Closing Bell Rings |
| title_full_unstemmed | Market Predictability Before the Closing Bell Rings |
| title_short | Market Predictability Before the Closing Bell Rings |
| title_sort | market predictability before the closing bell rings |
| topic | intraday momentum overnight returns trading strategies financial markets Bayesian linear regression |
| url | https://www.mdpi.com/2227-9091/12/11/180 |
| work_keys_str_mv | AT luzhang marketpredictabilitybeforetheclosingbellrings AT leihua marketpredictabilitybeforetheclosingbellrings |