Daily returns for stocks listed on the New York Exchange (NYSE) are not serially dependent. In contrast, order imbalances on the same stocks are highly persistent from day to day. These two empirical facts can be reconciled if sophisticated investors react to order imbalances within the trading...

Traditionally, volume has provided the link between trading activity and returns. We focus on a hitherto unexplored but intuitive measure of trading activity: the aggregate daily order imbalance on the New York Stock Exchange. Signed order imbalances increase (decrease) following market declines...