Order Imbalance, Liquidity, and Market Returns
Posted: 13 Nov 2001
In this paper, we focus on a previously unexplored but an intuitive measure of trading activity: the aggregate daily order imbalance, buy orders less sell orders, on the NYSE. Order imbalance increases following market declines and vice versa, which reveals that investors are contrarians on aggregate. Order imbalances in either direction reduce liquidity. Market-wide returns are strongly affected by contemporaneous and lagged order imbalances. Market returns reverse themselves after high negative imbalance, large negative return days. Even after controlling for aggregate volume and liquidity, market returns are affected by order imbalance.
Note: This is a description of the paper and is not the actual abstract.
Keywords: Market Order Imbalance, Liquidity, Trading Volume, Contrarian
JEL Classification: G20, G21
Suggested Citation: Suggested Citation