The Impact of Order Imbalance on Market Returns and Volatility: Evidence from Chinese Stock Market

In this paper, we investigate the relationship between market-wide order imbalance and market returns and volatility. The results show that contemporaneous order imbalance exerts an extremely significant impact on market returns and volatility, but lagged order imbalance has no power of prediction for market returns when not accompanied by its contemporaneous counterpart, and the positive part of lagged order imbalance has no power of prediction for market volatility either.