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Market efficiency and the long-memory of supply and demand: Is price impact variable and permanent or fixed and temporary?

Abstract:

In this comment we discuss the problem of reconciling the linear efficiency of price returns with the long-memory of supply and demand. We present new evidence that shows that efficiency is maintained by a liquidity imbalance that co-moves with the imbalance of buyer vs. seller initiated transactions. For example, during a period where there is an excess of buyer initiated transactions, there is also more liquidity for buy orders than sell orders, so that buy orders generate smaller and less ...

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Institution:
University of Oxford
Department:
Oxford, MPLS, Mathematical Inst
Publication date:
2006-02-02
URN:
uuid:5258c107-2dbb-43cd-b5ac-2d804cbd5056
Source identifiers:
387676
Local pid:
pubs:387676

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