Intraday Risk-Compensation Signals for Chinese Equity Selection

Summary

This study develops two equity factors from the relationship between intraday volatility and the return-to-volatility ratio. The “rebuilding” factor uses the daily covariance between that ratio and volatility to represent cases where volatility rises without adequate return compensation. The “climbing” factor focuses on unusually volatile minutes, defined as those at least one standard deviation above the day’s average volatility, where rising return-to-volatility may signal sufficient compensation and persistent strength. Both are built from minute data and combined from rolling monthly mean and variability measures.

The authors estimate volatility from five-minute windows of open, high, low, and close prices, arguing that this captures intraminute swings missed by close-only measures. Monthly cross-sectional tests on Chinese A-shares report stronger and more stable results for the climbing factor than for the rebuilding factor; the climbing signal also retains some predictive power after style and industry adjustment and shows its strongest reported results in the CSI 1000 universe. These are historical backtests, and the document cautions that relationships may weaken or fail as market conditions change.

Key ideas

• The climbing factor measures covariance between volatility and the return-to-volatility ratio during unusually volatile intraday periods.
• It combines rolling monthly averages and standard deviations of daily covariance measures.
• Using open, high, low, and close prices is intended to capture intraminute movements omitted by close-only volatility.
• The study reports stronger historical stock-selection results for the climbing factor than for its rebuilding counterpart.
• Reported performance may not persist under different market conditions.

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