The Information Content of Order Imbalance Volatility: Evidence From Account-Level Trading Activities on the Taiwan Futures Market

44 Pages Posted: 31 Dec 2018 Last revised: 28 Mar 2019

See all articles by Ming-Hung Wu

Ming-Hung Wu

Beijing Normal University - Zhuhai Campus

Hong-Gia Huang

National Sun Yat-sen University, Department of Finance, Students

Wei-Che Tsai

Oregon State University; National Sun Yat-sen University - Department of Finance

Pei-Shih Weng

National Dong Hwa University

Date Written: December 26, 2018

Abstract

Exploiting the advantage of unique account-level transaction data from Taiwan’s futures market, this study examines the effectiveness of the newly-developed “order imbalance volatility” measure (Chordia, Hu, Subrahmanyam, and Tong, 2017) in capturing the informed trading activities of various trader groups in an emerging market. Our empirical findings show that the order imbalance volatility of foreign institutional traders significantly predicts next-day market returns. The measure’s predictive ability is more pronounced when market illiquidity or economic uncertainty are higher. In addition, we find that subsequent purchase transactions in the stock market increase as the order imbalance volatility of foreign institutional investors increases — evidence of an information spillover effect from the futures market to its spot market. Order imbalance volatility proves valid for different intraday sampling frequencies and alternative measures of trading activity and can be found in the options market as well.

Keywords: Order Imbalance Volatility; Emerging Market; Information Asymmetry; Foreign Institutional Investors

JEL Classification: G14

Suggested Citation

Wu, Ming-Hung and Huang, Hong-Gia and Tsai, Wei-Che and Weng, Pei-Shih, The Information Content of Order Imbalance Volatility: Evidence From Account-Level Trading Activities on the Taiwan Futures Market (December 26, 2018). 2019 Financial Markets & Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=3306569

Ming-Hung Wu

Beijing Normal University - Zhuhai Campus ( email )

No 18 Jinfeng Road, Tangjiawan
Zhuhai, Guangdong
China

Hong-Gia Huang (Contact Author)

National Sun Yat-sen University, Department of Finance, Students ( email )

Kaohsiung
Taiwan

Wei-Che Tsai

Oregon State University ( email )

Corvallis, OR 97331
United States

National Sun Yat-sen University - Department of Finance ( email )

No.70, Lianhai Rd., Gushan District,
Kaohsiung City
Taiwan

Pei-Shih Weng

National Dong Hwa University ( email )

No. 1, Sec. 2, Da Hsueh Rd.
Shoufeng, Hualien 97401
Taiwan

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