DYNAMIC RETURN-ORDER IMBALANCE RELATIONSHIP RESPONSE TO LEVERAGED BUYOUT ANNOUNCEMENTS

Many researches indicate informed trading during Leveraged buy-out (LBO) processes. In this study, we examine intraday dynamic relations between order imbalance, volatility and stock returns. The dynamic relation between volatility and order imbalances by a time-varying GARCH model is insignificant, suggesting that market makers have a good ability to mitigate volatility of LBO firms on event dates. Our imbalance-based trading strategy earns a positive profit but cannot beat a buy-and-hold return.