Buy-sell imbalance and the mean-variance relation

•We study the impact of buy-sell imbalance on the market's mean-variance relation.•The effect of buy-sell imbalance on the mean-variance relation is time-varying.•The mean-variance relation is negative in periods of negative buy-sell imbalance.•The mean-variance relation is insignificant in periods of positive buy-sell imbalance.

Buy-sell imbalance is a crucial behavioral factor in the stock market. This paper emphasizes that buy-sell imbalance plays a systematic role in the market's mean-variance relation. Besides, the influence of buy-sell imbalance on the market's mean-variance relation is time-varying. As buy-sell imbalance is negative, the market's mean-variance relation is significantly negative; as buy-sell imbalance is positive, the market's mean-variance relation is insignificant. Furthermore, our analyses are robust across different conditional variance models and market portfolios with different values of stock capitalization.