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ABSTRACT Cross‐asset order flow provides an incremental and novel nonlinear price discovery channel. Structural vector autoregressions of synchronized intraday message data reveal distinct patterns in the comovement of order flow and its influence on returns and volatility. While cross‐market order flow usually reconciles prices through small‐stakes arbitrage in periods of low volatility and comovement during medium volatility associated with information arrival, it can exacerbate price dislocation from fundamental values during extraordinary volatility. While applying market‐wide circuit breakers (MWCB) mitigates the extreme negative spillovers by jointly halting markets, we identify room for further harmonization during the MWCB market reopening process.
Garrison et al. (Wed,) studied this question.
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