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

In: Advances In Quantitative Analysis Of Finance And Accounting

Author

Listed:
  • Ke Peng

    (University of Bradford, UK)

  • Shiyun Wang

    (Southwestern University of Finance and Economics, P. R. China)

Abstract

This 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.

Suggested Citation

  • Ke Peng & Shiyun Wang, 2008. "The Momentum and Mean Reversion of Nikkei Index Futures: A Markov Chain Analysis," World Scientific Book Chapters, in: Cheng-Few Lee (ed.), Advances In Quantitative Analysis Of Finance And Accounting, chapter 12, pages 239-251, World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789812791696_0012
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    More about this item

    Keywords

    Hedging Strategies; Expense Mismatching; Stock Split; Trading Volume; Portfolio Optimization; Intraday Patterns; Earnings Management; International Winner-Loser Effect;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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