Order Flow and Volatility: An Empirical Investigation
Tinbergen Institute Discussion Paper No. 2011-077/4
40 Pages Posted: 23 May 2011 Last revised: 16 Dec 2016
Date Written: May 19, 2014
We study the relationship between order flow and volatility. To this end we develop a comprehensive framework that simultaneously controls for the effects of macro announcements and order flow on prices and the effect of macro announcements on volatility. Using high-frequency 30-year U.S. Treasury bond futures data, we find a statistically and economically significant relationship between the absolute value of order flow and volatility. Moreover, this relationship is robust, inter alia, to a number of factors including the introduction of liquidity effects, use of data measured over a different frequency, and market conditions.
Keywords: Information, order flow, macroeconomic announcements, treasury futures
JEL Classification: G14, E14
Suggested Citation: Suggested Citation