Order Imbalance, Liquidity, and Market Returns

Posted: 13 Nov 2001

See all articles by Tarun Chordia

Tarun Chordia

Emory University - Department of Finance

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area; Institute of Global Finance, UNSW Business School; Financial Research Network (FIRN)

Richard Roll

California Institute of Technology

Abstract

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

Chordia, Tarun and Subrahmanyam, Avanidhar and Roll, Richard W., Order Imbalance, Liquidity, and Market Returns. Available at SSRN: https://ssrn.com/abstract=282759

Tarun Chordia (Contact Author)

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States
404-727-1620 (Phone)
404-727-5238 (Fax)

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-5355 (Phone)
310-206-5455 (Fax)

Institute of Global Finance, UNSW Business School

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Richard W. Roll

California Institute of Technology ( email )

1200 East California Blvd
Mail Code: 228-77
Pasadena, CA 91125
United States
626-395-3890 (Phone)
310-836-3532 (Fax)

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