Dynamic Relations between Order Imbalance, Return and Volatility of Extremely High Return Stocks
Date Issued
2007
Date
2007
Author(s)
Wen, Ching-Wan
DOI
en-US
Abstract
The main purpose of our study is to explore the dynamic relations between order imbalance, stock return and volatility for extremely high return stocks. According to previous literature, order imbalances contain abundant valuable information to future payoff. Under information asymmetry, stock market participants carefully examine order imbalances and attempt to make abnormal profit. We select stocks with intraday return higher than 35% as our sample data. It is interesting to derive the reason why these attractive high return stocks win such remarkable positive profit in a short period.
We test the dynamic relations by applying GARCH model and intertemporal time series model to our sample data. The empirical evidences reconfirm that contemporaneous order imbalance has positive and significant influence on price movement. A large amount of buyer-initiated order imbalance generates positive return in current period. Nevertheless, past order imbalances show negative or insignificant price impacts.
In addition, we investigate whether firm-specific characteristics can alter the intense of relation between return and order imbalances. However, our finding suggests that market capitalization, an important proxy of information asymmetry, is not a significant explanatory variable to the degree of price impact caused by order imbalance.
Subjects
買賣單不對稱
投機型股票
order imbalance
speculative stocks
high return
Type
thesis