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Do order imbalances predict Chinese stock returns? New evidence from intraday data

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  • Narayan, Paresh Kumar
  • Narayan, Seema
  • Westerlund, Joakim

Abstract

In this paper we examine whether order imbalances can predict the Chinese stock market returns. We use intraday data, a panel data predictive regression model that accounts for persistent and endogenous order imbalances and cross-sectional dependence in returns, and show that order imbalances predict stock returns from 1-minute trading to 90-minute trading. On the basis of this predictability evidence using multiple trading strategies we show that profits persist during the day. These results imply that a source of Chinese market inefficiency is order imbalances.

Suggested Citation

  • Narayan, Paresh Kumar & Narayan, Seema & Westerlund, Joakim, 2015. "Do order imbalances predict Chinese stock returns? New evidence from intraday data," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 136-151.
    • Handle: RePEc:eee:pacfin:v:34:y:2015:i:c:p:136-151
    DOI: 10.1016/j.pacfin.2015.07.003
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    More about this item

    Keywords

    Order imbalance; Stock returns; Predictability; Intraday; Panel data; Trading strategies;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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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