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Big data analytics, order imbalance and the predictability of stock returns

Author

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  • Akyildirim, Erdinc
  • Sensoy, Ahmet
  • Gulay, Guzhan
  • Corbet, Shaen
  • Salari, Hajar Novin

Abstract

Financial institutions have adopted big data to a considerable extent to provide better investment decisions. Consequently, high-frequency algorithmic traders use a vast amount of historical data with various statistical models to maximize their trading profits. Until recently, high-frequency algorithmic trading was the domain of institutional traders with access to supercomputers. Nowadays, any investor can potentially make high-frequency trades because of easy access to big data and software to analyze and execute trades. With that in mind, Borsa Istanbul introduced real time big data analytics as a product to its customers. These analytics are derived in real time from order book and trade data and aim to level the playing field between investment firms and retail traders. Using classical benchmark models in the literature, we show that Borsa Istanbul’s order imbalance-based data analytics are useful in predicting both time-series and cross-sectional intraday excess future returns, proving that this product is extremely beneficial to market participants, particularly day traders.

Suggested Citation

  • Akyildirim, Erdinc & Sensoy, Ahmet & Gulay, Guzhan & Corbet, Shaen & Salari, Hajar Novin, 2021. "Big data analytics, order imbalance and the predictability of stock returns," Journal of Multinational Financial Management, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:mulfin:v:62:y:2021:i:c:s1042444x21000402
    DOI: 10.1016/j.mulfin.2021.100717
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    More about this item

    Keywords

    Fintech; Big data; Data analytics; Order imbalance; Algorithmic trading;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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