Estimating Order Imbalance Using Low Frequency Data

95 Pages Posted: 1 Feb 2016 Last revised: 15 Jan 2018

See all articles by JinGi Ha

JinGi Ha

Singapore Management University - Lee Kong Chian School of Business

Jianfeng Hu

Singapore Management University - Lee Kong Chian School of Business

Date Written: January 12, 2018

Abstract

We estimate net order flow of individual stocks as a fraction of contemporaneous return and illiquidity proxies at the daily frequency based on the Kyle (1985) model. The estimated low-frequency order imbalance (LFOI) has comparable performance to high-frequency order imbalance (HFOI) in the Nasdaq market. LFOI has positive and permanent predictive ability for future returns on daily and weekly horizons in the cross-section. An investment strategy based on LFOI is profitable in all G10 markets. LFOI becomes more informative around corporate events. As an order imbalance estimate, LFOI can be easily and promptly calculated when tick data are not available.

Keywords: Order flow; low frequency; return predictability; informed trading

JEL Classification: C18; C58; C81; D82; G12; G14

Suggested Citation

Ha, JinGi and Hu, Jianfeng, Estimating Order Imbalance Using Low Frequency Data (January 12, 2018). Available at SSRN: https://ssrn.com/abstract=2725696 or http://dx.doi.org/10.2139/ssrn.2725696

JinGi Ha

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Jianfeng Hu (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore, 178899
Singapore
(+65) 68085477 (Phone)

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