| Summary: | 碩士 === 國立臺灣大學 === 財務金融學研究所 === 96 === This study adopts intraday return instead daily return used by previous researches to examine the effect of order imbalance not only on the individual stock return but also volatility among extreme losers. After that, we build up order imbalance-based trading strategies to gain profit.
First, the contemporaneous order imbalance-return relation is examined by GARCH (1,1) model and time-series regression model. The data presents significantly positive relation in both models as previous studies. Second, we focus on the lagged effect of the return and find that such relation is negatively significant while contemporaneous imbalance has positive significant. Third, we examine the volatility-order imbalance relationship by revised GARCH (1,1) model. The positive relationship is consistent with our expectation that larger imbalance would make return more volatile. Then, our empirical test of the small firm effect shows the weakly negative relation between order imbalance and market capital.
At last, we design two order imbalance-based trading strategies based on different price matched to the imbalance: the trading price and bid-ask price, separately and test the profitability. Due to the characteristics of our extreme losers, we adopt short selling strategy. Our results show the huge profitability of the two strategies when we pick up only the extreme volume.
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