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Intraday Volume Spikes as a Stock Selection Factor

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Summary

This study builds a monthly Chinese equity factor from stock returns and volatility around intraday volume surges. It defines a surge as a minute when the increase in trading volume exceeds that stock’s daily average increase by more than one standard deviation, excluding the open and close. The authors then examine returns during the surge minute and volatility over a five-minute window beginning with the surge. For each measure, they compare stocks with the daily cross-sectional average, aggregate the distance over a rolling 20-trading-day period, and combine the resulting return and volatility components into a single factor.

The report presents historical monthly backtests on the broad A-share universe and several index constituent universes. It reports strong rank information coefficients and long-short returns, including after orthogonalizing against common style factors; the CSI 500 universe performed best among those tested. Shortening the response window to three or four minutes reportedly preserved the effect. These are historical results from a specific sample and construction, and the report warns that market changes or shifting factor drivers may weaken the relationship. The document does not establish that the factor will remain predictive out of sample.

Key ideas

  • Define intraday volume surges using unusually large minute-over-minute volume increases relative to that stock’s daily distribution.
  • Measure price response using returns at surge minutes and return volatility over a short window after each surge.
  • Compare each stock’s response with the market cross-sectional average, then aggregate the deviations over 20 trading days.
  • Combine return and volatility components into a monthly stock selection factor.
  • The report finds historical predictive performance across several Chinese equity universes, but those results may not persist.

Tags

EquitiesFactor investingTechnical indicatorsBacktestingChina markets

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