The Momentum and Mean Reversion of Nikkei Index Futures: A Markov Chain Analysis

Ke Peng and Shiyun Wang
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Ke Peng: University of Bradford, UK
Shiyun Wang: Southwestern University of Finance and Economics, P. R. China

Chapter 12 in Advances in Quantitative Analysis of Finance and Accounting, 2008, pp 239-251 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThis chapter finds that the intraday Nikkei futures returns exhibit different patterns of momentum or mean reversion when changing observation intervals. Using a Markov chains methodology, a significant return momentum was found at 1-min observation interval. However, a significant return mean reversion was found at 10-min observation interval. This switching pattern of momentum to mean reversion is robust to intraday seasonality. Further, the sources that contribute to the high-frequency momentum and mean reversion are explored and it is concluded that large limit orders and the bid-ask effect can play the role.

Keywords: Hedging Strategies; Expense Mismatching; Stock Split; Trading Volume; Portfolio Optimization; Intraday Patterns; Earnings Management; International Winner-Loser Effect (search for similar items in EconPapers)
JEL-codes: G2 G3 (search for similar items in EconPapers)
Date: 2008
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