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Trading Imbalance in Chinese Stock Market—A High-Frequency View

by 1, 2,3,* and 2,3
1
School of Statistics and Mathematics, Central University of Finance and Economics, Beijing 100081, China
2
School of Economics and Management, Beihang University, Beijing 100191, China
3
Beijing Advanced Innovation Center for Big Data and Brain Computing, Beijing 100191, China
*
Author to whom correspondence should be addressed.
Entropy 2020, 22(8), 897; https://doi.org/10.3390/e22080897
Received: 14 July 2020 / Revised: 12 August 2020 / Accepted: 13 August 2020 / Published: 15 August 2020
Although an imbalance of buying and selling profoundly affects the formation of market trends, a fine-granularity investigation of this perplexity of trading behavior is still missing. Instead of using existing entropy measures, this paper proposed a new indicator based on transaction dataset that enables us to inspect both the direction and the magnitude of this imbalance at high frequency, which we call “polarity”. The polarity aims to measure the unevenness of the very essence trading desire based on the most micro decision making units. We investigate the relationship between the polarity and the return at both market-level and stock-level and find that the autocorrelated polarities cause a positive relation between lagged polarities and returns, while the current polarity is the opposite. It is also revealed that these associations shift according to the market conditions. In fact, when aggregating the one-minute polarities into daily signals, we find not only significant correlations disclosed by the market polarity and market emotion, but also the reliability of these signals in terms of reflecting the transitions of market-level behavior. These results imply that our presented polarity can reflect the market sentiment and condition in real time. Indeed, the trading polarity provides a new indicator from a high-frequency perspective to understand and foresee the market’s behavior in a data-driven manner. View Full-Text
Keywords: stock market crash; trading behavior; trading imbalance; trading polarity stock market crash; trading behavior; trading imbalance; trading polarity
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MDPI and ACS Style

Lu, S.; Zhao, J.; Wang, H. Trading Imbalance in Chinese Stock Market—A High-Frequency View. Entropy 2020, 22, 897. https://doi.org/10.3390/e22080897

AMA Style

Lu S, Zhao J, Wang H. Trading Imbalance in Chinese Stock Market—A High-Frequency View. Entropy. 2020; 22(8):897. https://doi.org/10.3390/e22080897

Chicago/Turabian Style

Lu, Shan, Jichang Zhao, and Huiwen Wang. 2020. "Trading Imbalance in Chinese Stock Market—A High-Frequency View" Entropy 22, no. 8: 897. https://doi.org/10.3390/e22080897

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