Title: Investigating the interaction between returns and order flows: Endogeneity, intraday variations, and macro announcements
Authors: Makoto Takahashi - Hosei University (Japan) [presenting]
Abstract: The aim is to examine the interaction between returns and order flow imbalances (differences between buy and sell orders), constructed from the best bid and offer files of S&P 500 E-mini futures contract, using a structural vector autoregressive (SVAR) model. The well-known intraday variation in market activity is considered by applying the SVAR model for each short interval each day, whereas the endogeneity due to time aggregation is handled by estimating the structural parameters via the identification through heteroskedasticity. The estimation results show that significant endogeneity exists and that the estimated parameters and associated quantities, such as the return variance driven by order flow imbalances, vary over time, reflecting intense or mild order submission activities. Further, order flow imbalances are shown to be more informative several minutes away from macroeconomic news announcements and that inactive order submission periods exist when they occur.