Order flow and volatility: An empirical investigation

• Volatility dynamics in the 30-year US Treasury bond futures market are examined.
• We develop a comprehensive framework for intraday return and volatility effects.
• We study the order flow - volatility relationship and control for macro news.
• Order flow is highly significant (both statistically and economically).
• An interpretation of our findings is that private information matters for volatility.

We study the relationship between order flow and volatility. To this end we develop a comprehensive framework that simultaneously controls for the effects of macro announcements and order flow on prices and the effect of macro announcements on volatility. Using high-frequency 30-year U.S. Treasury bond futures data, we find a statistically and economically significant relationship between the absolute value of order flow and volatility. Moreover, this relationship is robust, inter alia, to a number of factors including the introduction of liquidity effects, use of data measured over a different frequency, and market conditions.