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Article
Publication date: 29 March 2013

Nikhil Rastogi, V.N. Reddy and Kiran Kumar Kotha

The purpose of this paper is to study the empirical relationship between order imbalance and returns in the backdrop of structural changes in the Indian market.

Abstract

Purpose

The purpose of this paper is to study the empirical relationship between order imbalance and returns in the backdrop of structural changes in the Indian market.

Design/methodology/approach

The study makes use of hypothesis testing and dummy variable regression to investigate the relationship between order imbalance and returns during the period 1999‐2005, which saw definitive change in the structure of the Indian markets.

Findings

Order imbalance (buying or selling pressure) has significantly reduced post the structural reforms at the daily as well as intra‐day intervals across trade, as well as value measures of order imbalance. After controlling for the number of transactions, order imbalance and return correlations have fallen in the post‐2002 period as compared to the pre‐2002 period, at daily as well as intra‐day intervals. Further, after controlling for past high and low returns, order imbalance exhibits day of the week effect in the pre‐2002 period while no such effect is seen in the post‐2002 period.

Originality/value

The work brings out order imbalance and returns relationship for the Indian market, which has different structure from that of many developed, as well as developing, markets in the backdrop of changes in its own structure. This would provide a richer literature in the area of market structure and design.

Details

International Journal of Managerial Finance, vol. 9 no. 2
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 30 July 2018

Steffen Volkenand, Guenther Filler and Martin Odening

The purpose of this paper is to investigate and compare the impact of order imbalance on returns, liquidity and price volatility in agricultural futures markets on an…

Abstract

Purpose

The purpose of this paper is to investigate and compare the impact of order imbalance on returns, liquidity and price volatility in agricultural futures markets on an intraday basis. The authors examine whether order imbalance is more powerful to explain variations in asset prices compared to other indicators of trading activity, particularly trading volume.

Design/methodology/approach

Using Chicago Mercantile Exchange best bid best offer data, the impact of order imbalance is analyzed via regression analyses. The analyses are carried out for corn, wheat, soy, live cattle and lean hogs in March 2008 and March 2016.

Findings

Results confirm the positive relation between order imbalance and returns as well as between order imbalance and price volatility as suggested by market microstructure models. Order imbalance, however, does not generally outperform trading volume as an explanatory variable.

Practical implications

For some contracts, returns can be predicted using lagged order imbalance. This offers the opportunity to derive profitable trading strategies.

Originality/value

This paper is one of the first attempts to explore the relationship between order imbalance and returns, liquidity and volatility for agricultural commodity futures on an intraday basis, accounting for the increased trading volume and for the high speed at which new information enters the market in an electronic trading environment.

Details

Agricultural Finance Review, vol. 78 no. 5
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 5 August 2019

Muhammad Ali Nasir and Karen Jackson

In the context of debate on competitive devaluation and trade imbalances, the purpose of this paper is to investigate the role of exchange rate misalignment as a…

Abstract

Purpose

In the context of debate on competitive devaluation and trade imbalances, the purpose of this paper is to investigate the role of exchange rate misalignment as a determinant of trade imbalances in selected major trade surplus (Germany, China, Japan, Russia and KSA) and major trade deficit countries (USA, UK, France, India and Turkey).

Design/methodology/approach

The authors used a structural vector auto-regressive model on data from ten countries with the highest trade deficit and surplus. The period of analysis is from 2000 Q1 to 2016 Q1.

Findings

The key findings suggest that although exchange rate misalignment from equilibrium may have some implications for the current account balance for surplus and deficit countries, the effects observed were rather very mild and transitory. There was a heterogeneity in the response of the current account position to exchange rate misalignment in each country, concomitantly; the exchange rate misalignment shall not be seen as the sole responsible factor in the debate on global trade imbalances.

Research limitations/implications

The research has profound implications in terms of exploring the notion of competitive devaluation and exchange rate misalignment as a cause of major global trade imbalances.

Practical implications

This study has important practical implications for the trade policy of major economies in the world. These are twofold. First, this study has analysed and reported on the degree of misalignment of exchange from its equilibrium values in the major trade surplus and deficit countries. Second, it has investigated the implications of any misalignment for the trade balance or respective economies.

Social implications

There are important social implications as the notion of competitive devaluation and exchange rate–trade balance nexus has been heavily politicised. This study provides an empirical insight and an answer to these claims which have social and political implications.

Originality/value

There is a significant element of originality and contribution to the existing body of knowledge on the subject. In the context of debate on competitive devaluation this is the first study which has investigated whether the exchange rate has been misaligned from its equilibrium values (competitive devaluation) and whether there is some nexus between the real exchange rate misalignment and trade imbalances in under-analysis economies.

Details

Journal of Economic Studies, vol. 46 no. 4
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 21 September 2009

Amber Anand and Avanidhar Subrahmanyam

We analyze trading activity accompanying equities’ switches from “growth” (low book‐tomarket ratios (BMRs)) to “value” (high BMRs), and vice versa. We find that a large…

Abstract

We analyze trading activity accompanying equities’ switches from “growth” (low book‐tomarket ratios (BMRs)) to “value” (high BMRs), and vice versa. We find that a large BMR increase, that is a shift from growth to value, is accompanied by a strongly negative small order imbalance (OIB). Large OIB exhibits weaker patterns across stocks that experience large changes in book/market. The evidence indicates that growth‐to‐value shifts are more strongly related to small traders than large ones. The interaction of BMRs with order flows plays a crucial role in return predictability. Specifically, the predictive ability of BMRs for future returns is significantly enhanced for those stocks that have experienced book/market increases as well as high levels of net selling by way of small orders.

Details

Review of Behavioural Finance, vol. 1 no. 1/2
Type: Research Article
ISSN: 1940-5979

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Book part
Publication date: 1 July 2015

Qiheng Han, Junqing Li and Jianbo Zhang

Based on an uncertainty model with an infinite horizon, this chapter analyzes how financial development and monetary policy in two countries can impact international trade

Abstract

Based on an uncertainty model with an infinite horizon, this chapter analyzes how financial development and monetary policy in two countries can impact international trade and capital flows and influence individual behavior and welfare. Our study shows that differences in capital market development are the major contributing factors for trade imbalance and investment among countries. We also find that monetary policies are important factors affecting the trade balance, consumption, and investment. Countries with one-sided, pegging exchange rate policies tend to buy more bonds and enjoy larger trade surpluses. This effect is closely related to the level of capital market development: in these two countries, at higher stages of development, the effects of idiosyncratic monetary policy on imbalance are amplified.

Details

Monetary Policy in the Context of the Financial Crisis: New Challenges and Lessons
Type: Book
ISBN: 978-1-78441-779-6

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Article
Publication date: 8 February 2011

Xiang Dai and Erzhen Zhang

This paper aims to conceptually argue that China's trade surplus with the USA is good by clarifying its fundamental forces from specific perspective.

Abstract

Purpose

This paper aims to conceptually argue that China's trade surplus with the USA is good by clarifying its fundamental forces from specific perspective.

Design/methodology/approach

China's trade surplus with the USA is simply the result of comparative advantage under the background of international intra‐product specialization. Being the consequence of global resources optimization allocation, China's trade imbalance, including trade surplus with the USA, is certainly a win‐win game in international trade.

Findings

There are strong reasons to believe that China's trade surplus with the USA is beneficial to both China and the USA.

Originality/value

The forces causing China's trade surplus with the USA are complex and multiple different conclusions may be reached from different perspectives. This paper argues that one of the fundamental forces driving China's trade surplus with the USA is international intra‐product specialization, and from this perspective, it can help us understand that China's trade surplus with the USA is good for both nations to some extent.

Details

Journal of Chinese Economic and Foreign Trade Studies, vol. 4 no. 1
Type: Research Article
ISSN: 1754-4408

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Book part
Publication date: 2 June 2008

Ulrich Kohli

Nearly all international trade takes place in middle products, rather than in finished goods as it is assumed in most models of international trade theory. Recognition of…

Abstract

Nearly all international trade takes place in middle products, rather than in finished goods as it is assumed in most models of international trade theory. Recognition of this fact has some far-reaching consequences for the measurement of real value added, real domestic income, and productivity, and it brings forward the role of a number of related, yet distinct, key price ratios: the terms of trade, the real exchange rate, and the trading gains. Production theory, rather than consumer theory, is therefore the appropriate setting for analyzing issues such as openness, trade imbalances, and income distribution.

Details

Contemporary and Emerging Issues in Trade Theory and Policy
Type: Book
ISBN: 978-1-84950-541-3

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Article
Publication date: 18 November 2020

Conghua Wen, Fei Jia and Jianli Hao

Using intraday data, the authors explore the forecast ability of one high frequency order flow imbalance measure (OI) based on the volume-synchronized probability of…

Abstract

Purpose

Using intraday data, the authors explore the forecast ability of one high frequency order flow imbalance measure (OI) based on the volume-synchronized probability of informed trading metric (VPIN) for predicting the realized volatility of the index futures on the China Securities Index 300 (CSI 300).

Design/methodology/approach

The authors employ the heterogeneous autoregressive model for realized volatility (HAR-RV) and compare the forecast ability of models with and without the predictive variable, OI.

Findings

The empirical results demonstrate that the augmented HAR model incorporating OI (HARX-RV) can generate more precise forecasts, which implies that the order imbalance measure contains substantial information for describing the volatility dynamics.

Originality/value

The study sheds light on the relation between high frequency trading behavior and volatility forecasting in China's index futures market and reveals the underlying market mechanisms of liquidity-induced volatility.

Details

China Finance Review International, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2044-1398

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Article
Publication date: 12 July 2019

Abhinava Tripathi, Alok Dixit and Vipul

The purpose of this study is to systematically review and analyze the literature in the area of liquidity of financial markets. The study summarizes the key findings and…

Abstract

Purpose

The purpose of this study is to systematically review and analyze the literature in the area of liquidity of financial markets. The study summarizes the key findings and approaches and highlights the research gaps in the extant literature.

Design/methodology/approach

A variety of reputed databases are utilized to select 100 research papers, from a large pool of nearly 3,000 research papers spanning between 1972 and 2018 using systematic literature review methodology. The selected research papers are organized to provide an in-depth analysis and an account of the ongoing research in the area of liquidity. The study uses bibliometric network visualization and word-cloud analyses to compile and analyze the literature.

Findings

The study summarizes the recent approaches in the liquidity research on aspects such as methodologies followed, variables applied, sub-areas covered, and the types of economies and markets covered. The article shows that the literature on liquidity in the emerging markets (e.g. China and India) is deficient. Overall, the following research areas related to liquidity need further exploration in the context of emerging markets: liquidity beyond the best bid-ask quotes, intraday return predictability using microstructure variables (e.g. order imbalances), impact of algorithmic-trading and volatility of liquidity.

Originality/value

To the best of authors’ knowledge, in the recent past, a detailed account of the literature on liquidity has not been published. It provides a comprehensive collection and classification of the literature on the liquidity of financial markets. This would be helpful to the future researchers, academics and practitioners in the area of financial markets.

Details

Studies in Economics and Finance, vol. 37 no. 2
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 1 May 1991

Robert T. Green and Trina L. Larsen

Examines the USA‐Japan trade controversy, arising from the extendedtrade imbalance between them, with respect to the most contentiousproduct categories. Then provides a…

Abstract

Examines the USA‐Japan trade controversy, arising from the extended trade imbalance between them, with respect to the most contentious product categories. Then provides a statistical assessment of the changes that have occurred in Japanese trade between 1985 and 1989. The findings suggest little improvement over the time period.

Details

International Marketing Review, vol. 8 no. 5
Type: Research Article
ISSN: 0265-1335

Keywords

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