Intraday Momentum Residual Factor
factor.formula
1. Calculate overnight yield:
The overnight return of individual stocks is:
The corresponding index overnight return is:
2. Calculate the intraday afternoon rate of return:
The afternoon return rate of the stock is:
The corresponding index's afternoon return rate during the day is:
3. Calculate the regression residuals of the intraday return:
Using overnight and afternoon return data from the previous N days (e.g. N=40), perform a cross-sectional regression:
Get the residual term:
4. Calculate the intraday momentum residual:
Residual term of overnight return of individual stocks:
The intraday momentum residual is:
5. Calculate the T statistic for the intraday momentum residual:
The calculation formula is as follows:
6. Cross-section eliminates the impact of momentum factor:
Perform a cross-sectional regression on the T statistic to remove the impact of momentum factors (such as the past 20-day return):
The regression residual \epsilon_j is the final intraday momentum residual factor.
in:
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The overnight return of the ith stock is the return of the opening price of the day relative to the closing price of the previous day.
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The overnight return of the index corresponding to the i-th stock, that is, the return of the opening price of the day relative to the closing price of the previous day.
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The afternoon return of the ith stock usually refers to the return from the midday close to the close of the day.
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The afternoon return rate of the index corresponding to the i-th stock usually refers to the return rate from the midday close to the close of the day.
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The intercept term of the cross-sectional regression represents the average return level of individual stocks when the market index return is 0.
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The slope term of the cross-sectional regression indicates the sensitivity of individual stock returns to the market index returns, that is, the systematic risk of individual stocks.
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The residual term of the regression of intraday return on market return reflects the specific part of the afternoon return of individual stocks after eliminating the market impact, which can be understood as the specific return of individual stocks during the day.
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The residual term of overnight return refers to the overnight stock-specific return after excluding the impact of market factors.
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The intraday momentum residual, that is, the difference between the overnight return residual and the intraday afternoon return residual, reflects the momentum effect of the stock's intraday returns. A positive value means that for stocks with higher (or lower) overnight returns, the afternoon returns may move in the opposite direction, and a negative value means the opposite.
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The mean of the intraday momentum residuals ( \delta_i ) reflects the average level of intraday momentum residuals in the stock pool.
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The standard deviation of the intraday momentum residual ( \delta_i ) reflects the volatility of the intraday momentum residual in the stock pool.
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The sample size used to calculate the T statistic is usually the number of historical days for the intraday return regression.
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The T-statistic of the intraday momentum residual of the jth stock is used to standardize the intraday momentum residual and improve the comparability of the factor across different stocks.
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The return of the jth stock in the past 20 trading days is used as the momentum factor in the cross-sectional regression to eliminate the momentum effect.
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The residual of the cross-sectional regression is the final intraday momentum residual factor value, which reflects the pure intraday momentum residual level of the stock after eliminating the influence of market and momentum factors.
factor.explanation
This factor is designed to capture the intraday momentum reversal effect. It is based on the assumption that informed traders are more likely to trade in the morning, so the price action in the morning (overnight) may contain more alpha information. If a stock's overnight return (i.e., the return of the opening price relative to the previous day's closing price) is significantly higher or lower than the average, then its afternoon return is likely to reverse. This factor is constructed by calculating the difference between the overnight return residual and the afternoon return residual and normalizing it to quantify this intraday momentum reversal effect. In addition, the factor also eliminates the impact of the overall market return and stock momentum to extract a purer intraday momentum signal. This factor is suitable for short-term trading strategies, especially for trading strategies that capture intraday reversal opportunities.