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How markets slowly digest changes in supply and demand

Abstract:

In this article we revisit the classic problem of tatonnement in price formation from a microstructure point of view, reviewing a recent body of theoretical and empirical work explaining how fluctuations in supply and demand are slowly incorporated into prices. Because revealed market liquidity is extremely low, large orders to buy or sell can only be traded incrementally, over periods of time as long as months. As a result order flow is a highly persistent long-memory process. Maintaining co...

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Authors


Bouchaud, JP More by this author
More by this author
Institution:
University of Oxford
Department:
Oxford, MPLS, Mathematical Inst
Publisher:
Elsevier Inc.
Pages:
57-160
Publication date:
2008-09-04
DOI:
URN:
uuid:5d0bfc86-a1f2-4bca-9e1e-8ab792c2cb81
Source identifiers:
387671
Local pid:
pubs:387671
Language:
English
Keywords:

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