Order Flow Imbalance Effects on the German Stock Market
Business Research, December 2015, Volume 8, Issue 2, pp 213-238
Posted: 16 Mar 2013 Last revised: 19 Jan 2016
Date Written: July 17, 2013
Order flow imbalance refers to the difference between market buy and sell orders during a given period. This paper analyzes effects of order flow imbalance on returns of stocks traded on the German Xetra trading system on a daily basis. It is the first study examining this relation for the German stock market. In contrast to previous studies on other markets, we control for unobserved effects by using a fixed effects panel regression. For the concurrent (or conditional) relation between order imbalance and returns, our results confirm those of the literature. For the question of return predictability from past order imbalances (unconditional relation), our results are partly confirmatory. As a new contribution, we provide evidence for size and liquidity effects for the unconditional relation between order imbalance and returns.
Keywords: order imbalance
JEL Classification: G14
Suggested Citation: Suggested Citation