Trade Size Based Order Imbalance and the Cross-Section of Stock Returns

Abstract

This study conducts a comprehensive analysis of trade size-based order imbalance and its impact on future security and market returns. It particularly highlights the predictive power of medium-sized trades (1000 to 4999 shares) in predicting future abnormal returns that is significantly influenced by a structural break in 2000. Prior to the break, traders realized positive abnormal returns, indicative of informed trading. Conversely, post-break returns were negative, suggesting a shift to uninformed trading. These findings are robust to a battery of tests and controls known to affect predictions of future security and market returns.

Keywords: Market Microstructure, Trade Size, Order Imbalance, Intra-Day Trades, Asset Pricing