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Order size, order imbalance and the volatility–volume relation in a bull versus a bear market


  • We acknowledge the Securities Industry Research Centre of Asia-Pacific (SIRCA) for providing data. We also acknowledge the helpful comments provided by the anonymous reviewer, the participants at the UWA Business School Accounting and Finance Research Seminar and the FIRN conference on Financial Crises: Causes, Characteristics & Effects.


This paper revisits the volume–volatility relationship documented in Chan and Fong (2000) in a bull versus a bear market by using data from the period surrounding the subprime crisis in 2008. The relationship is predicted to be asymmetric because of the greater cost of short positions, the lack of liquidity and the differing trading strategies adopted in a bearish market. Our analysis shows the trading patterns in the bull and bear markets are different. Particularly, in a falling market characterised by higher volatility and lower liquidity, the frequency of order placement has doubled but orders are smaller in size. This provides evidence of investors’ shift of trading strategy in relation to the status change of the market. Furthermore, we find evidence to support the proposition that volume is more informative in a bear market than in a bull market.