Refining the APM Equity Factor with Intraday Return Patterns

Summary

This research note examines an equity-selection factor built from differences in stock price behavior across the trading day. It reports that the original APM factor performed well in its in-sample period, weakened out of sample, and suffered a sustained drawdown in 2019. To investigate, the authors compare the predictive behavior of returns from different time segments. They find that the relationship with future returns shifts from positive overnight to negative by the afternoon, while the morning segment is less stable.

The proposed improvement adjusts which intraday periods enter the factor, with the revised version reported to fare better in 2019. Its long-short results are stronger among CSI 500 constituents than across the full market, while performance among CSI 300 stocks is described as limited. An alternative segmentation produces an overnight-and-afternoon factor. These findings rely on historical tests and may not persist as market behavior changes.

Key ideas

• The APM approach uses differences in intraday stock returns to build a selection factor.
• The original factor weakened out of sample and experienced a notable 2019 drawdown.
• The authors attribute the weakness to changing predictive patterns across intraday periods.
• A revised factor changes the time segments used and reportedly improves 2019 performance.
• Results vary by stock universe and are based on historical data.

Tags

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