Intraday return predictability in China’s crude oil futures market: New evidence from a unique trading mechanism

Intraday return predictability has generated great interest from academics and practitioners, and intraday momentum in the stock market has been widely documented in the literature. China’s crude oil futures market has a unique trading mechanism with a novel W-shaped trading volume pattern. Inspired by this, we use high-frequency data from China’s crude oil futures market to examine its intraday return predictability. We find a strong intraday reversal effect rather than a conventional intraday momentum effect. Specifically, the previous night’s return can significantly predict the day’s return both in- and out-of-sample. Asset allocation and market timing exercises show that this finding is also economically significant. Furthermore, we find that intraday reversal predictability is concentrated in high trading volume, high return volatility, and low liquidity periods. The predictability of the day return from the night return increases when more night information and less day information are included.