Intraday sentiment and market returns

We investigate intraday sentiment factor and its relation to near-term returns in both the stock market and stock index futures market. For study near-term sentiment effect, we construct stock index futures sentiment and stock sentiment at 5-minutes frequency. In each market system, we show sentiment variables are a strong positive predictor of subsequent stock market returns and stock index futures returns in 5-minutes horizons. In the two market system, the evidence suggests that 1) sentiment variables have a spillover effect that they affect relevant other market's future returns significantly and 2) sentiment variables have contagion effect that they affect relevant other market's future sentiment significantly. Finally, we show an out-of-sample forecasting test and confirm the sentiment variables have powerful predictability to returns in short-term.