Please use this identifier to cite or link to this item: http://hdl.handle.net/1783.1/6019

Market predictability and non-informational trading

Authors Hendershott, Terrence
Seasholes, Mark S.
Issue Date 2009-03-11
Source Hendershott, Terrence; Seasholes, Mark S. (Dec 2008). Market Predictability and Non-Informational Trading. The 2008 HKUST Finance Symposium, The Hong Kong University of Science and Technology, Hong Kong, China , 16-17 December 2008
Summary This paper studies the ability of non-informational order imbalances (buy minus sell volume) to predict daily stock returns at the market level. Using a model with three types of participants (an informed trader, liquidity traders, and a finite number of arbitrageurs), we derive predictions relating returns to lagged returns and lagged order imbalances. Empirical tests using New York Stock Exchange non-informational basket/portfolio trading data provide results consistent with adverse selection at the market-level, but no evidence of limited risk-bearing capacity. Finally, we establish that these market-wide non-informational order imbalances also affect individual stock return comovement by examining additions to the S&P500 Index.
Subjects
Language English
Format Conference paper
Access
Files in this item:
File Description Size Format
MarketPredictability20090311.pdf 327961 B Adobe PDF