Order flow volatility and equity costs of capital

• Main Authors: CHORDIA, Tarun, HU, Jianfeng, SUBRAHMANYAM, Avanidhar, TONG, Qing
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2019
• Subjects: Order flow; required returns; expected returns; Business; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/4552; https://ink.library.smu.edu.sg/context/lkcsb_research/article/5551/viewcontent/OrderFlowVolatilityEquityCostsCapital_2016_wp.pdf
• Institution: Singapore Management University

We propose that the volatility of order flow is a proxy for costs of information asymmetry, as order flow volatility varies positively with parameters that also influence adverse selection costs of trading. Empirically, order flow volatility is significantly higher prior to earnings or merger announ...