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Chinese Journal of Management Science

Chinese Journal of Management Science >

2015 , Vol. 23 >Issue 4: 148 - 156

DOI: https://doi.org/10.16381/j.cnki.issn1003-207x.2015.04.018

Articles

Dynamic Investment Strategy Based on Order Flow and Its Empirical Study

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  • 1. Faculty of Finance, Guizhou University of Finance and Economics, Giyang 550004, China;
    2. Chinese Finance Research Institute, Southwestern University of Finance and Economics, Chengdu 600074, China;
    3. School of International Economic, Guizhou University of Finance and Economics, Giyang 550004, China

Received date: 2012-10-07

  Revised date: 2013-04-02

  Online published: 2015-04-24

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Abstract

Order flow indicator is introduced in this paper to capture the flow of funds, and order impact coefficient is put forward to characterize the change rate of funds inflow. From the perspective of financial market microstructure, a dynamic investment strategy is constructed based on order flow. From investors' expected utility maximization, by constructing a Lagrange function, the dynamic investment strategy is derived the optimal investment weight. An empirical study with daily data of index stocks of Shenzhen stock exchange composite index from June 1st, 2009 to July 31st, 2009 is carried out. The empirical results indicate that the dynamic investment strategy based on order flow can obtain better investment return. The test results of t test based on paired data show that, the dynamic investment strategy based on order flow can get significant excess returns. New direction for constructing investment strategy from the perspective of financial market microstructure is provided in this paper.

Key words： order flow; dynamic investment strategy; expected utility; empirical study

Cite this article

LI Cheng-gang, LUO Cong, HU Jian-bo . Dynamic Investment Strategy Based on Order Flow and Its Empirical Study[J]. Chinese Journal of Management Science, 2015 , 23(4) : 148 -156 . DOI: 10.16381/j.cnki.issn1003-207x.2015.04.018

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