The effect of security and market order flow shocks on co-movement

Patricia Chelley-Steeley, Neophytos Lambertides and Christos Savva ()

Journal of International Financial Markets, Institutions and Money, 2015, vol. 39, issue C, 136-155

Abstract: In this paper, we apply the smooth transition conditional correlation model to examine the impact that shocks to order flow imbalance have on stock market co-movement. We show that positive and negative shocks to security order flow reduce co-movement. Market order flow shocks have only a small impact on post shock correlations. Our results suggest that investors can increase diversification opportunities when forming dynamic portfolio strategies if they take account of security order flow information. We show that pre-shock firm characteristics allow investors to identify those stocks with the greatest diversification benefits.

Keywords: Order flow shock; Co-movement; Smooth transition model (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S104244311500092X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:39:y:2015:i:c:p:136-155

DOI: 10.1016/j.intfin.2015.07.005

Access Statistics for this article

Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

More articles in Journal of International Financial Markets, Institutions and Money from Elsevier
Bibliographic data for series maintained by Catherine Liu ().