Dynamic causality between intraday return and order imbalance in NASDAQ speculative top gainers

Abstract

This study explores dynamic conditional and unconditional causality relations between intraday return and order imbalance on extraordinary events. We examine intraday behaviour of NASDAQ speculative top gainers. In this study, we employ a regression model to examine intraday return-order imbalance behaviours. Moreover, we introduce a multiple-hypotheses testing method, namely a nested causality, to identify the dynamic relationship between intraday returns and order imbalances. We find order imbalance convey more information than trading volume does. While examining three intraday time regimes, we find the contemporaneous order imbalance-return effect is significant in the third sub-period, which implies that informed trading will take place in the afternoon. The size-stratified results show there is a negative relation between firm size and the order imbalance-return effect. The impact of the trading volume on the order imbalance-return effect is weaker than that of the firm size. Moreover, the volume-stratified results suggest that order imbalance be a better return predictor in small trading volume quartile and the order imbalance-based trading strategies are useful in the afternoon regime.

Order Flow Imbalance Effects on the German Stock Market

“…Harford and Kaul (2005) document a strong concurrent relation on the US stock market for 1986 and 1996. In the 2000s, this is confirmed for special samples such as top losers or gainers by Su and Huang (2008), Su et al (2009b), Su et al (2011), andHuang et al (2012). Apart from stocks, Locke and Onayev (2007, S&P 500) and Huang and Chou (2007, Taiwan) find strong intra-day relations for index futures.…”

“…Conversely, stocks with extremely positive returns do not show any significant imbalance-return relation. This is shown for the NASDAQ by Su and Huang (2008) and Su et al (2009a, b). The first paper deals with 5-min returns, the two others with 90-s intervals.…”

Drivers of seasonal return patterns in German stocks

“…Despite the sizeable literature on the link between order imbalance and asset returns, previous empirical evidence on seasonal imbalance patterns is scarce: Chang and Shie (2011) document that buying pressure in the Taiwanese futures market clusters in the last 30 minutes of a trading day. Su and Huang (2008) find that imbalance-related trading strategies for specific NASDAQ stocks are more profitable in the afternoon. Beyond the intra-day horizon, Lee et al (2004) show that selling activity in the Taiwanese stock market is focused on Tuesday.…”

Convergence to market efficiency of top gainers

“…Under different time intervals, we examine the predictive and explanatory ability of imbalances on returns and explore the convergence process of top gainers. Su and Huang (2008) investigate the intra-day behavior of NASDAQ speculative top gainers in examining the relationship between returns and order imbalances in light of extraordinary events and conclude that order imbalances convey more information than trading volume. Besides, they observe a negative relationship between firm size and order imbalances, i.e., order imbalances serve as a better return predictor in the small trading volume quartile.…”