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Intraday return predictability, portfolio maximisation, and hedging

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  • Narayan, Paresh Kumar
  • Sharma, Susan Sunila

Abstract

We examine whether intraday Chinese return predictability is linked to optimal portfolio holding and hedging. We find that: (1) S&P500 futures returns only predict Chinese spot market returns in up to 5-minute of trading with predictability disappearing at higher frequencies of trade; (2) the portfolio weight is maximised at the 5-minute trading frequency, when predictability is the strongest; and (3) when predictability is the strongest, significantly less shorting of the futures is required to minimise risk when a long position is taken in the Chinese market.

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  • Narayan, Paresh Kumar & Sharma, Susan Sunila, 2016. "Intraday return predictability, portfolio maximisation, and hedging," Emerging Markets Review, Elsevier, vol. 28(C), pages 105-116.
    • Handle: RePEc:eee:ememar:v:28:y:2016:i:c:p:105-116
    DOI: 10.1016/j.ememar.2016.08.017
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