Download this Paper Open PDF in Browser

What Does Equity Sector Orderflow Tell Us about the Economy?

51 Pages Posted: 17 Feb 2009  

Alessandro Beber

Cass Business School; Centre for Economic Policy Research (CEPR)

Kenneth A. Kavajecz

Syracuse University - Whitman School

Michael W. Brandt

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 4 versions of this paper

Date Written: February 1, 2009

Abstract

Investors rebalance their portfolios as their views about expected returns and risk change. We use empirical measures of portfolio rebalancing to back out investors' views, specifically views about the state of the economy. We show that aggregate portfolio rebalancing across equity sectors is consistent with sector rotation, an investment strategy that exploits perceived differences in the relative performance of sectors at different stages of the business cycle. The empirical foot-print of sector rotation has predictive power for the evolution of the economy, future stock market returns, and future bond market returns, even after controlling for relative sector returns. Contrary to many theories of price formation, trading activity therefore contains information that is not entirely revealed by resulting relative price changes.

Suggested Citation

Beber, Alessandro and Kavajecz, Kenneth A. and Brandt, Michael W., What Does Equity Sector Orderflow Tell Us about the Economy? (February 1, 2009). EFA 2009 Bergen Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1344764 or http://dx.doi.org/10.2139/ssrn.1344764

Alessandro Beber

Cass Business School ( email )

London, EC2Y 8HB
Great Britain

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Kenneth A. Kavajecz

Syracuse University - Whitman School ( email )

900 S. Crouse Avenue
Syracuse, NY 13244-2130
United States

Michael W. Brandt (Contact Author)

Duke University - Fuqua School of Business ( email )

1 Towerview Drive
Durham, NC 27708-0120
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Paper statistics

Downloads
111
Rank
15,814
Abstract Views
822