Journal of Financial Economics | 2021

Hedging demand and market intraday momentum



Hedging short gamma exposure requires trading in the direction of price movements, \nthereby creating price momentum. Using intraday returns on over 60 futures on equities, \nbonds, commodities, and currencies between 1974 and 2020, we document strong “market \nintraday momentum” everywhere. The return during the last 30 minutes before the market \nclose is positively predicted by the return during the rest of the day (from previous market \nclose to the last 30 minutes). The predictive power is economically and statistically highly \nsignificant, and reverts over the next days. We provide novel evidence that links market \nintraday momentum to the gamma hedging demand from market participants such as market \nmakers of options and leveraged ETFs.

Volume None
Pages None
DOI 10.1016/J.JFINECO.2021.04.029
Language English
Journal Journal of Financial Economics

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