Asymmetric Relationship Between Order Imbalance and Realized Volatility: Evidence from the Australian Market

29 Pages Posted: 2 Jan 2019 Last revised: 25 May 2019

See all articles by Emawtee Bissoondoyal-Bheenick

Emawtee Bissoondoyal-Bheenick

Monash University; Financial Research Network (FIRN)

Robert D. Brooks

Monash University; Financial Research Network (FIRN)

Hung Xuan Do

Massey University, Albany campus; University of Technology, Sydney

Date Written: December 17, 2018

Abstract

This paper examines the effect of order imbalance on realized volatility in the Australian stock market for the period between August 2007 and May 2016. To analyse this asymmetric relationship, we decompose order imbalance into buyer- and seller-initiated trades and capture good and bad volatilities by using realized semivariances. We find that the effect of seller-/buyer-initiated trade on bad/good volatility is asymmetric. Specifically, the effect of seller-initiated trade on bad volatility is consistently larger than that of buyer-initiated trade on good volatility. On the other hand, while seller-initiated trade has no significant effect on good volatility, buyer-initiated trade has significantly reduced the bad volatility. We conclude that the number of trades and trade volume have an impact on realized volatility, irrespective of the components of realized volatility.

Keywords: Order Imbalance, Realized Volatility, Realized Semivariances, Buyer- Versus Seller-Initiated Trades, ASX50

JEL Classification: G14, G15

Suggested Citation

Bissoondoyal-Bheenick, Emawtee and Brooks, Robert Darren and Do, Hung Xuan, Asymmetric Relationship Between Order Imbalance and Realized Volatility: Evidence from the Australian Market (December 17, 2018). International Review of Economics & Finance, Vol. 62, 2019. Available at SSRN: https://ssrn.com/abstract=3302368 or http://dx.doi.org/10.2139/ssrn.3302368

Emawtee Bissoondoyal-Bheenick (Contact Author)

Monash University ( email )

Building H, Level 3
900 Dandenong Road
Caulfield, Victoria 3 145
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Financial Research Network (FIRN)

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Australia

HOME PAGE: www.firn.org.au

Robert Darren Brooks

Monash University ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Financial Research Network (FIRN)

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

Hung Xuan Do

Massey University, Albany campus ( email )

Auckland
New Zealand
+64 92136160 (Phone)
+64 92136160 (Fax)

HOME PAGE: http://www.massey.ac.nz/massey/expertise/profile.cfm?stref=972450

University of Technology, Sydney ( email )

PO Box 123
Broadway, 2007
Australia

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