Testing U-Shaped Intraday Volume as an Information Signal
Summary
The article explains the common U-shaped intraday volume pattern, with activity elevated near the open and close. It proposes that informed traders may prefer these liquid periods to act on information gathered before the open or to avoid overnight risk, while less-informed traders may trade more uniformly. Under this hypothesis, the share of volume concentrated in the first and last half-hours could proxy for informed participation, though volume alone cannot reveal whether the information is favorable or unfavorable.
A monthly strategy test on CSI 300 constituents ranks stocks by that volume share over the prior 15 trading days, selecting the 20 highest-share and 20 lowest-share stocks. The author reports that both portfolios had unsatisfactory returns and stability, but the low-share portfolio performed better in the backtest. The article suggests a possible long-low-share, short-high-share hedge against broad market risk; it gives no detailed performance statistics and treats the result as an initial idea rather than conclusive evidence.
Key ideas
- The article links elevated opening and closing volume to informed traders seeking liquidity or managing overnight risk.
- It proposes first- and last-half-hour volume share as a proxy for informed participation.
- A monthly CSI 300 test compares the 20 highest- and 20 lowest-share stocks using a 15-day lookback.
- The low-share portfolio performed better in the reported test, but both portfolios had weak returns and stability.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.