Order Flow Volatility and Equity Costs of Capital

• 成果类型: Article
• 署名作者: Chordia, Tarun; Hu, Jianfeng; Subrahmanyam, Avanidhar; Tong, Qing
• 署名单位: Emory University; Singapore Management University; Nanjing University; University of California System; University of California Los Angeles
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2017.2848
• 发表日期: 2019
• 页码: 1520-1551
• 关键词: Asset pricing; INVESTMENT; Order Flow

摘要

We propose that the volatility of order flow is a proxy for costs of information asymmetry, as order flow volatility varies positively with parameters that also influence adverse selection costs of trading. Empirically, order flow volatility is significantly higher prior to earnings or merger announcements when information asymmetry is likely to be elevated. Levels of and shocks to order flow volatility are positively and significantly correlated with existing illiquidity proxies, and strongly predict stock returns in the cross section. The impact of order imbalance volatility shocks on stock prices is reflected within one month in large, visible stocks but takes up to four months to be fully reflected in small, neglected stocks.