Calling the end of the bubble: Are there trends in order imbalances

Julia Henker
Thomas Henker

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Published Version.

Henker, J., & Henker, T. (2009). Calling the end of the bubble: Are there trends in order imbalances? JASSA: Journal of Finsia - the Financial Services Institute of Australasia, Issue 1, Autumn, 36-40.

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This article was reproduced with permission in the ASIF eJournal by FINSIA

Abstract

Extract:
Can traders effectively conceal their information processing from the rest of the market, or is it there for the alert investor to observe? Could we see, for example, the reduction in demand that leads to the crash of a stock price bubble, or can investors keep their sentiment private?

We might expect that if we look carefully at buy and sell orders over several days, we could forecast the change from an upward to a downward trend in asset prices, but we would be wrong.

In this article, we investigate whether stock price bubble crashes are foreshadowed in order imbalances. Uninformed investors, lacking any better means, could try to anticipate price changes based on demand and supply, particularly in a limit order market like the Australian Securities Exchange (ASX).