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Does Order Flow Commonality Extend Across Trade Sizes and Securities?

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  • J. Christopher Hughen
  • Cynthia G. McDonald

Abstract

We examine commonality in order imbalances across different types of securities and find that the extent of commonality is greater than previously documented. Order imbalances in portfolios of small stocks, large stocks, and closed‐end funds have explanatory power for other portfolio returns even in the presence of own order flow. Our analysis of order flow composition reveals commonality in small and medium trades, but not in large trades, across portfolios. The activity from small‐size trades is systemic, but not generally associated with returns on other securities. Order imbalances from larger size trades provide more information relevant to stock prices.

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  • J. Christopher Hughen & Cynthia G. McDonald, 2006. "Does Order Flow Commonality Extend Across Trade Sizes and Securities?," Financial Management, Financial Management Association International, vol. 35(1), pages 107-128, March.
    • Handle: RePEc:bla:finmgt:v:35:y:2006:i:1:p:107-128
    DOI: 10.1111/j.1755-053X.2006.tb00133.x
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    2. Corwin, Shane A. & Lipson, Marc L., 2011. "Order characteristics and the sources of commonality in prices and liquidity," Journal of Financial Markets, Elsevier, vol. 14(1), pages 47-81, February.
    3. Ben Branch & Aixin Ma & Jill Sawyer, 2010. "Around‐the‐Clock Performance of Closed‐End Funds," Financial Management, Financial Management Association International, vol. 39(3), pages 1177-1196, September.
    4. A. Can Inci & Biao Lu & H. Nejat Seyhun, 2010. "Intraday Behavior of Stock Prices and Trades around Insider Trading," Financial Management, Financial Management Association International, vol. 39(1), pages 323-363, March.
    5. A. Inci & H. Seyhun, 2012. "How do quotes and prices evolve around isolated informed trades?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 36(2), pages 499-519, April.

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