Delta-hedging demand and intraday momentum: Evidence from China

Xianghui Yuan and Xiang Li

Physica A: Statistical Mechanics and its Applications, 2022, vol. 600, issue C

Abstract: This paper reveals that the rest-of-day return has positively significant prediction on the last 30-min return in the Chinese SSE 50 exchange-traded fund market. Its predictive power is economically significant and will decay in the next three days. Moreover, it reveals the relationship between intraday return prediction and short gamma hedging demand from option market makers, demonstrating that intraday hedging could be postponed till the end of a trading day. Intraday momentum caused by rebalancing traders and information investors cannot be completely offset by option market makers on days with positive net gamma exposure. Our results are robust to alternative exchange-traded fund index option and its underlying asset.

Keywords: Intraday momentum; Hedging demand; Return predictability; SSE 50 ETF options; CSI 300 ETF options (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:600:y:2022:i:c:s0378437122003624

DOI: 10.1016/j.physa.2022.127508

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