Returns and Order Flow Imbalances: Intraday Dynamics and Macroeconomic News Effects

TL;DR

This paper investigates the high-frequency relationship between returns and order flow imbalances in the S&P 500 E-mini futures market, revealing how macroeconomic news impacts price dynamics and liquidity within seconds.

Contribution

It introduces a structural VAR model identified through heteroskedasticity to analyze intraday and high-frequency effects of macroeconomic news on price and flow impacts.

Findings

Price impact increases after macro news

Flow impact declines following news

Shocks dissipate within one second

Abstract

We study the interaction between returns and order flow imbalances in the S&P 500 E-mini futures market using a structural VAR model identified through heteroskedasticity. The model is estimated at one-second frequency for each 15-minute interval, capturing both intraday variation and endogeneity due to time aggregation. We find that macroeconomic news announcements sharply reshape price-flow dynamics: price impact rises, flow impact declines, return volatility spikes, and flow volatility falls. Pooling across days, both price and flow impacts are significant at the one-second horizon, with estimates broadly consistent with stylized limit-order-book predictions. Impulse responses indicate that shocks dissipate almost entirely within a second. Structural parameters and volatilities also exhibit pronounced intraday variation tied to liquidity, trading intensity, and spreads. These results provide new evidence on high-frequency price formation and liquidity, highlighting the role of public information and order submission in shaping market quality.