Book/market fluctuations, trading activity, and the cross-section of expected stock returns
Article first published online: 16 JUN 2009
Copyright © 2009 John Wiley & Sons, Ltd.
Review of Behavioral Finance
Volume 1, Issue 1-2, pages 3–22, September 2009
How to Cite
Anand, A. and Subrahmanyam, A. (2009), Book/market fluctuations, trading activity, and the cross-section of expected stock returns. Rev. Behav. Fin., 1: 3–22. doi: 10.1002/rbf.1
- Issue published online: 23 SEP 2009
- Article first published online: 16 JUN 2009
- book/market fluctuations;
- order imbalances
We analyze trading activity accompanying equities' switches from “growth” (low book-to-market ratios (BMRs)) to “value” (high BMRs), and vice versa. We find that a large BMR increase, that is a shift from growth to value, is accompanied by a strongly negative small order imbalance (OIB). Large OIB exhibits weaker patterns across stocks that experience large changes in book/market. The evidence indicates that growth-to-value shifts are more strongly related to small traders than large ones. The interaction of BMRs with order flows plays a crucial role in return predictability. Specifically, the predictive ability of BMRs for future returns is significantly enhanced for those stocks that have experienced book/market increases as well as high levels of net selling by way of small orders. Copyright © 2009 John Wiley & Sons, Ltd.