What Does Equity Sector Orderflow Tell Us About the Economy?

61 Pages Posted: 23 Mar 2009 Last revised: 5 Nov 2010

See all articles by Alessandro Beber

Alessandro Beber

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

Michael W. Brandt

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

Kenneth A. Kavajecz

Edgewood College; Phoenix Rising Advisory

Multiple version iconThere are 4 versions of this paper

Date Written: November 3, 2010

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 their 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 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 Brandt, Michael W. and Kavajecz, Kenneth A., What Does Equity Sector Orderflow Tell Us About the Economy? (November 3, 2010). AFA 2010 Atlanta Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1364121 or http://dx.doi.org/10.2139/ssrn.1364121

Alessandro Beber (Contact Author)

Cass Business School ( email )

London, EC2Y 8HB
Great Britain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Michael W. Brandt

Duke University - Fuqua School of Business ( email )

1 Towerview Drive
Durham, NC 27708-0120
United States

National Bureau of Economic Research (NBER)

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Kenneth A. Kavajecz

Edgewood College ( email )

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Phoenix Rising Advisory ( email )

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MADISON, WI 53703
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