Trade Co-occurrence, Trade Flow Decomposition, and Conditional Order Imbalance in Equity Markets

Understand

The time proximity of high-frequency trades can contain a salient signal.

• In this paper, we propose a method to classify every trade, based on its proximity with other trades in the market within a short period of time, into five types.
• By means of a suitably defined normalized order imbalance associated to each type of trade, which we denote as conditional order imbalance (COI), we investigate the price impact of the decomposed trade flows.
• Our empirical findings indicate strong positive correlations between contemporaneous returns and COIs.