Electronic Resource
Cambridge, Mass.
:
Berkeley Electronic Press (now: De Gruyter)
Studies in nonlinear dynamics and econometrics
8.2004, 3, art1
ISSN:
1081-1826
Source:
Berkeley Electronic Press Academic Journals
Topics:
Mathematics
,
Economics
Notes:
For the London Stock Exchange we demonstrate that the signs of orders obey a long-memory process. The autocorrelation function decays roughly as a power law with an exponent of 0.6, corresponding to a Hurst exponent H = 0.7. This implies that the signs of future orders are quite predictable from the signs of past orders; all else being equal, this would suggest a very strong market inefficiency. We demonstrate, however, that fluctuations in order signs are compensated for by anti-correlated fluctuations in transaction size and liquidity, which are also long-memory processes that act to make the returns whiter. We show that some institutions display long-range memory and others don't.
Type of Medium:
Electronic Resource
URL:
http://www.bepress.com/snde/vol8/iss3/art1
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