A High-Frequency Candlestick Path Illiquidity Factor for Stock Selection

Summary

This research summary proposes a stock illiquidity factor based on the shortest path through intraday candlestick data. It aims to improve on a conventional proxy that relates price returns to trading volume, which the authors say can be unreliable during choppy intraday markets. Using higher-frequency bars is presented as a way to capture trading market impact more accurately. The report also compares variations of the factor and identifies a version called TS as its strongest selection measure.

The summary reports historical long-short and stock portfolio results, including risk-adjusted returns and drawdowns, over a stated backtest period. It says the factor retains selection ability after neutralizing for size, turnover, momentum, and volatility effects. These findings are reported from historical model tests, not evidence of future performance; the source explicitly warns that the model may fail. The underlying report is referenced but not reproduced, so construction details and testing assumptions are unavailable here.

Key ideas

• The proposed factor estimates illiquidity from the shortest path through higher-frequency candlestick data.
• The approach is intended to address weaknesses in return-per-volume proxies during intraday fluctuations.
• The report compares factor variants and highlights a TS version for stock selection.
• The summary reports historical portfolio and neutralized-factor performance, which may not persist.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.