Asymmetric relationship between order imbalance and realized volatility: evidence from the Australian market

Emawtee Bissoondoyal-Bheenick, Robert Brooks, Hung Xuan Do

Research output: Contribution to journalArticleResearchpeer-review

1 Citation (Scopus)

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.

Original languageEnglish
Pages (from-to)309-320
Number of pages12
JournalInternational Review of Economics and Finance
Volume62
DOIs
Publication statusPublished - 1 Jul 2019

Keywords

  • ASX50
  • Buyer-versus seller-initiated trades
  • Order imbalance
  • Realized semivariances
  • Realized volatility

Cite this

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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.",
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Asymmetric relationship between order imbalance and realized volatility : evidence from the Australian market. / Bissoondoyal-Bheenick, Emawtee; Brooks, Robert; Do, Hung Xuan.

In: International Review of Economics and Finance, Vol. 62, 01.07.2019, p. 309-320.

Research output: Contribution to journalArticleResearchpeer-review

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