Phase transition phenomenon: A compound measure analysis

•We develop a compound measure to describe the phenomenon of market phase transition.•The order size is more relevant to phase transition than the investor type.•Large investors possibly generate phase transition in the KOSPI 200 futures market.

This study investigates the well-documented phenomenon of phase transition in financial markets using combined information from both return and volume changes within short time intervals. We suggest a new measure for the phase transition behaviour of markets, calculated as a return distribution conditional on local variance in volume imbalance, and show that this measure successfully captures phase transition behaviour under various conditions. We analyse the intraday trade and quote dataset from the KOSPI 200 index futures, which includes detailed information on the original order size and the type of each initiating investor. We find that among these two competing factors, the submitted order size yields more explanatory power on the phenomenon of market phase transition than the investor type.