Intraday time-series momentum and investor trading behavior

Abstract

This paper documents intraday time-series momentum in Taiwanese exchange-traded funds, as evidenced by the predictive relationship between the last half-hour return and the first three half-hour returns. A market timing trading strategy that uses trading signals from the second (third) half-hour return outperforms the benchmarks, earning a market-adjusted return of 5.33% (5.27%) per annum. Institutional and foreign investors’ order imbalances over the last half-hour determine concurrent returns and positively respond to early-morning returns, while the predictive effect of the first half-hour return on the last half-hour return disappears after controlling for institutional and foreign investors’ trading behavior. Collectively, we show that institutional and foreign investors’ late-informed trading contributes to intraday time-series momentum.