Order imbalance, market returns and volatility: evidence from Thailand during the Asian crisis

Abstract

This article examines the interaction between order imbalance, stock returns, volatility and volume dynamics during Asian financial crisis using intraday data of 418 stocks traded on the Stock Exchange of Thailand (SET) from January 1996 to October 2003. The inverse relationship between the past 30-min interval order imbalance and current stock return in both pre- and post-devaluation of baht indicates that aggregate investors are contrarians. During the currency crisis, aggregate investors are less contrarian compared to the pre-devaluation period. Moreover, excess sell orders have a stronger impact to future return than to the excess buy orders. During the financial crisis, future stock returns are sensitive to an increase in current excess sell orders, but are insensitive to the current excess buy orders. In addition to the positive volume–volatility relation, the influence of order imbalance to volatility is much weaker after controlling for the level of stock returns.

Acknowledgements

We would like to thank the Editor and two anonymous referees for their insightful comments which improved the presentation of the article. All remaining errors are our responsibility.

Notes

¹ For example, Cushing and Madhavan (2000) and Chordia et al. (2005) document that short-horizon returns are predictable from the past order flows.

² A full computer trading system called ASSET has been adopted since April 1991. Trading of most securities is completed using the auction method under the automated system, containing two trading systems: AOM and a support system, Put-Through (PT). The brokerage firms could submit their orders online to the ASSET system and the orders are arranged according to price-then-time priority using AOM, and could also announce bid or offer prices quoted using the price spread rules of the SET via the ASSET's facility using PT.

³ See Chordia et al. (2001).

⁴ Available upon request.