Intraday Extreme Returns and the ERR Reversal-Momentum Factor

Summary

This report studies whether the most unusual intraday price bar contains useful stock-selection information. It defines extremeness as the absolute distance between a bar’s return and the median intraday return, then examines the bar with the greatest deviation and the returns immediately before and after it. The reported pattern is reversal before the extreme bar and momentum afterward.

The proposed ERR factor combines the ranking of the most extreme return with the return from the preceding minute. In the report’s tests, this combination improves the long-short information ratio versus a traditional reversal factor and the extreme-return factor alone. Extending the analysis to the Nth most extreme bars, the authors find weaker standalone information as N rises, while adding the preceding-minute return improves results across the ranks considered. The report also gives results for several Chinese equity indexes and after industry-style neutralization. These are historical tests, so the performance may not persist; the document does not provide enough detail here to assess implementation costs or robustness outside its tested setting.

Key ideas

• Intraday extremeness is measured by a bar return’s absolute deviation from the median intraday return.
• Returns before the most extreme bar show reversal behavior, while returns after it show momentum behavior.
• The ERR factor combines the extreme return’s rank with the return from the preceding minute.
• The reported signal weakens for increasingly less extreme bars, though adding the preceding-minute return improves the tested ranks.
• The reported performance comes from historical tests and may change under future market conditions.

Tags

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