Work

Liquidity, Volume, and Order Imbalance Volatility

Year: 2023

Type: article

Abstract: ABSTRACT We examine the dynamics of liquidity using a comprehensive sample of U.S. stocks in the post‐decimalization period. Motivated by a continuous‐time inventory model, we compute a high‐frequency measure of order imbalance volatility to proxy for the inventory risk faced by liquidity providers. We show that high‐frequency order imbalance volatility is an important driver of liquidity and explains the often positive time‐series relation between spread and volume for large stocks, which seems to run counter to most theoretical models. Furthermore, order imbalance volatility is priced in the cross‐section of stock returns.

Source: The Journal of Finance

DOI: 10.1111/jofi.13248

Authors: VINCENT BOGOUSSLAVSKY, PIERRE COLLIN‐DUFRESNE

Institutions: Boston College, Bentley University, University of Perugia, École Polytechnique Fédérale de Lausanne, Swiss Finance Institute

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W4377987782

FWCI: 7.583

Cites: 64

Cited by: 42

Related to: 10