An Intraday Volume Ratio Factor for Equity Selection
Summary
This research note examines how stock trading volume changes across the trading day and how the timing of that volume relates to subsequent returns. It describes a W-shaped intraday pattern in China, with activity rising around the morning and afternoon opens and near the close. In a five-minute analysis of 49 daily intervals, volume-share signals had different relationships with next-month returns at different times. The proposed volume-ratio factor compares turnover during the first 30 minutes of the morning, including the opening auction, with turnover during the first 30 minutes after the afternoon session begins.
The note reports that shorter moving-average windows strengthened the factor’s predictive statistics, while a monthly arithmetic-average version performed better than an exponentially weighted alternative in the reported portfolio comparisons. Its historical tests give return, Sharpe, drawdown, and information-coefficient figures, and show weaker but remaining predictive ability after adjustments for volatility, size, liquidity, and industry. These results are evidence from the cited study, not a guarantee of future performance; the summary does not provide enough detail to assess data construction, trading costs, or robustness independently.
Key ideas
- Intraday equity volume follows recurring patterns, with morning and afternoon openings and the close receiving particular attention.
- The relationship between volume share and next-month returns varies by time of day.
- The proposed factor divides morning opening-period volume by volume in the first 30 minutes of the afternoon session.
- Shorter averaging windows showed stronger predictive statistics in the reported analysis.
- Neutralizing for common risk and industry exposures reduced, but did not eliminate, the factor’s measured predictive ability.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.