2022 Volume 19 Pages 23-48
The study examines the interaction between returns and order flow imbalances (differences between buy and sell orders), constructed from the best (highest) bid and best (lowest) offer files of S&P 500 E-mini futures contract, using a structural vector autoregressive (SVAR) model. The well-known intraday variation in market variables such as the number and size of orders is considered by applying the SVAR model for each short interval each day, whereas the endogeneity due to time aggregation is handled by estimating the structural parameters via identification through heteroskedasticity. The results show that significant endogeneity exists and that the estimated parameters and associated variates, such as the return variance driven by order flow imbalances, vary over time, reflecting the movements in market variables.
