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What Does Equity Sector Orderflow Tell Us About the Economy?

Beber, A., Brandt, M. W. & Kavajecz, K. A. (2011). What Does Equity Sector Orderflow Tell Us About the Economy?. The Review of Financial Studies, 24(11), pp. 3688-3730. doi: 10.1093/rfs/hhr067


Investors rebalance their portfolios as their views about expected returns and risk change. We use empirical measures of portfolio rebalancing to back out investors' views, specifically, their views about the state of the economy. We show that aggregate portfolio rebalancing across equity sectors is consistent with sector rotation, an investment strategy that exploits perceived differences in the relative performance of sectors at different stages of the business cycle. The empirical footprint of sector rotation has predictive power for the evolution of the economy and future bond market returns, even after controlling for relative sector returns. Contrary to many theories of price formation, trading activity, therefore, contains information that is not entirely revealed by resulting relative price changes.

Publication Type: Article
Additional Information: © The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. This is an Open Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (, which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited. For commercial re-use, please contact
Publisher Keywords: G12 - Asset Pricing; Trading volume; Bond Interest Rates G11 - Portfolio Choice; Investment Decisions E17 - Forecasting and Simulation: Models and Applications
Departments: Bayes Business School > Finance
Text - Published Version
Available under License Creative Commons Attribution Non-commercial.

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