Explaining turn of the year order flow imbalance |
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| Institution: | 1. University of Birmingham Business School, University of Birmingham Edgbaston, Birmingham, B15 2TY UK;2. Cyprus University of Technology, Department of Commerce, Finance and Shipping, 3603 Lemesos, Cyprus;3. Aston Business School, Aston University, Birmingham B4 7ET, UK;1. Anderson Graduate School of Management, University of California, Los Angeles, 110 Westwood Plaza, Suite C420, Los Angeles, CA 90095, USA;2. Robert H. Smith School of Business, University of Maryland, 4466 Van Munching Hall, College Park, MD 20742, USA |
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| Abstract: | The paper provides evidence of a turn of the year effect in the order flow imbalance of both retail and institutional investors. In December there is net selling pressure which is reversed in January. We examine high frequency intraday order flow information and find that the changes in order flow imbalance between December and January are related to firm risk factors and characteristics. We find that retail order flow imbalances are associated with a wide range of risk characteristics including beta, illiquidity and unsystematic risk. Imbalances in institutional order flow are associated with only a small number of risk variables. We show that these order flow changes are important because risk premiums are elevated in January. Our results are robust to the effects of decimalization. |
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