ISO order imbalances and individual stock returns

Justin Cox

Journal of Financial Research, 2021, vol. 44, issue 1, 5-23

Abstract: I examine the relation between intermarket sweep order (ISO) order imbalances and the daily returns of individual stocks. First, I show that ISO order imbalances are positively related to contemporaneous returns. Second, I find that price pressures emanating from ISO imbalances are persistent and predict cumulative abnormal returns up to 2 months. The predictive power of ISO order imbalances on contemporaneous and future abnormal returns is strongest for firms in the smallest firm size quintile. Finally, I analyze herding among ISO order imbalances and find strong commonality. My results indicate that ISOs contribute to both short‐ and long‐term return formation.

Date: 2021
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https://doi.org/10.1111/jfir.12233

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