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Asymmetric relationship between order imbalance and realized volatility: Evidence from the Australian market

Author

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  • Bissoondoyal-Bheenick, Emawtee
  • Brooks, Robert
  • Do, Hung Xuan

Abstract

This paper examines the effect of order imbalance on realized volatility in the Australian stock market for the period between August 2007 and May 2016. To analyse this asymmetric relationship, we decompose order imbalance into buyer- and seller-initiated trades and capture good and bad volatilities by using realized semivariances. We find that the effect of seller-/buyer-initiated trade on bad/good volatility is asymmetric. Specifically, the effect of seller-initiated trade on bad volatility is consistently larger than that of buyer-initiated trade on good volatility. On the other hand, while seller-initiated trade has no significant effect on good volatility, buyer-initiated trade has significantly reduced the bad volatility. We conclude that the number of trades and trade volume have an impact on realized volatility, irrespective of the components of realized volatility.

Suggested Citation

  • Bissoondoyal-Bheenick, Emawtee & Brooks, Robert & Do, Hung Xuan, 2019. "Asymmetric relationship between order imbalance and realized volatility: Evidence from the Australian market," International Review of Economics & Finance, Elsevier, vol. 62(C), pages 309-320.
    • Handle: RePEc:eee:reveco:v:62:y:2019:i:c:p:309-320
    DOI: 10.1016/j.iref.2019.04.009
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    Cited by:

    1. Mensi, Walid & Sensoy, Ahmet & Aslan, Aylin & Kang, Sang Hoon, 2019. "High-frequency asymmetric volatility connectedness between Bitcoin and major precious metals markets," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    2. Zhang, Sijia & Gregoriou, Andros, 2021. "The impact of order flow on event study returns: New evidence from zero-leverage firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 627-634.
    3. Pham, Son Duy & Nguyen, Thao Thac Thanh & Do, Hung Xuan & Vo, Xuan Vinh, 2023. "Portfolio diversification during the COVID-19 pandemic: Do vaccinations matter?," Journal of Financial Stability, Elsevier, vol. 65(C).
    4. Qinkai Chen & Christian-Yann Robert, 2021. "Multivariate Realized Volatility Forecasting with Graph Neural Network," Papers 2112.09015, arXiv.org, revised Dec 2021.
    5. He, Mengxi & Wang, Yudong & Zeng, Qing & Zhang, Yaojie, 2023. "Forecasting aggregate stock market volatility with industry volatilities: The role of spillover index," Research in International Business and Finance, Elsevier, vol. 65(C).
    6. Lu, Ran & Xu, Wen & Zeng, Hongjun & Zhou, Xiangjing, 2023. "Volatility connectedness among the Indian equity and major commodity markets under the COVID-19 scenario," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1465-1481.

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