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Information Content of Order Flow and Cross-market Portfolio Rebalancing: Evidence for the Chinese Stock, Treasury and Corporate Bond Markets

Eric Girardin (), Dijun Tan and Woon K. Wong
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Dijun Tan: GREQAM ,Universitˆm de la Mˆmditerranˆme-Aix Marseille II ,University of Electronic Science and Technology of China
Woon K. Wong: University of the West of England

No 22010, Working Papers from Hong Kong Institute for Monetary Research

Abstract: This paper examines the within-market and cross-market information content of order flow for stocks, corporate bonds and Treasury bonds in China. With daily-aggregated tick-by-tick data over three years on the Shanghai Security Exchange, we find negative cross-asset effects of order flow on returns, both between stocks and bonds and between corporate and Treasury bonds. Our results provide evidence that not only cross-market portfolio rebalancing under general market conditions, but also flight-to-quality, which occurs particularly under extreme market conditions, are responsible for the cross-market effects of order flow. In particular, while Treasury bonds play a dominant role in stock-bond portfolio rebalancing, corporate bonds can replace Treasury bonds as a safe ¡§haven¡¨ during extreme stock market conditions or during a fall in Treasury bond market returns.

Keywords: Order Flow; Portfolio Rebalancing; Flight-to-quality; Chinese Financial Markets (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 G14 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2010-01
New Economics Papers: this item is included in nep-mst
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