Order Imbalances and Stock Price Movements on October 19 and 20, 1987

Authors

  • MARSHALL E. BLUME,

  • A. CRAIG MACKINLAY,

  • BRUCE TERKER

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    • Blume and MacKinlay are at the Wharton School, University of Pennsylvania, Terker is at Geewax, Terker & Company. The authors wish to thank Morris Mendelson, Merton Miller, Lawrence Summers, and especially René Stulz and the referee for helpful comments. We also gratefully acknowledge the research help of Neelu Agrawal and Sandeep Patel.


ABSTRACT

On October 19, 1987, NYSE stocks in the S&P index declined seven percentage points more than NYSE stocks not in this index. In the first hour of trading on October 20, the S&P stocks virtually recovered to the level of the non-S&P stocks. There is a strong relation between order imbalances and stock price movements, both in analyses of time series and cross-sections. Thus, in addition to the breakdown in the linkage between future prices and the spot index on these two days, there were also breakdowns in the linkage among NYSE stocks.

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