High Frequency Return and Risk Patterns in U.S. Sector ETFs during COVID-19

Abstract

This study investigates the presence of intraday patterns in the eleven sectors of the United States (U.S.) economy. Key contributions are in terms of assessing (i) risk and return patterns at specific time periods of the trading session on the New York Stock Exchange (NYSE), (ii) whether a specific day return model can predict the next 15-minute positive return, and (iii) the impact of the first vaccination rollout in the U.S. on intraday Exchange-Traded-Funds (ETF) returns. We use time dependent regressions to capture risk and returns relationships, decision trees in machine learning to compare return models, and impulse responses to capture the effect of the 2019 novel coronavirus (COVID-19) vaccine rollout in the U.S. 15-minute frequency Standard &amp; Poor’s Depository Receipts (SPDR) Select Sector ETF data is used, from 12th March 2020 till 23rd February 2021. Findings suggest that sector ETF returns in both the first and last 15 minutes of the core session fluctuate more than for the rest of the day. Average returns in the first 15 minutes are the highest, converging to near zero as we progress through the day. Overnight returns are the most significant in contributing towards the volatility for any trading session. U-shaped patterns into both return and risk are observed, with Mondays exhibiting a more pronounced U-shaped pattern. Mondays and Fridays have the most significant positive returns 15 minutes after the open. Prediction scores using an all-return model were superior to any specific day return model. The first vaccination rollout has a positive effect only in energy, technology, and financial sector ETFs, however with a short-lasting effect on the ETFs return.<br>