BookMarket Fluctuations, Trading Activity, and the Crosssection of Expected Stock Returns

We analyze trading activity accompanying equities switches from growth low booktomarket ratios BMRs to value high BMRs, and vice versa. We find that a large BMR increase, that is a shift from growth to value, is accompanied by a strongly negative small order imbalance OIB. Large OIB exhibits weaker patterns across stocks that experience large changes in bookmarket. The evidence indicates that growthtovalue shifts are more strongly related to small traders than large ones. The interaction of BMRs with order flows plays a crucial role in return predictability. Specifically, the predictive ability of BMRs for future returns is significantly enhanced for those stocks that have experienced bookmarket increases as well as high levels of net selling by way of small orders.