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

Fabrizio Lillo, Austin Gerig, J. Doyne Farmer, Fabrizio Lillo, Szabolcs Mike

Research output: Contribution to journalArticlepeer-review

50 Citations (Scopus)

Abstract

The fact that supply and demand fluctuations have longmemory,which was independently discovered by Lilloand Farmer (2004) and Bouchaud et al. (2004), raisesan apparent paradox about compatibility with marketefficiency. The adage that buying drives the price upand selling drives it down is one of the least controversialstatements in finance. The long-memory of supplyand demand implies that there are waves of buyerinitiatedor seller-initiated transactions that are highlypredictable using a simple linear algorithm. All elsebeing equal, this suggests that price movements shouldalso be highly predictable
Original languageEnglish
Pages (from-to)107-112
Number of pages6
JournalQuantitative Finance
Volume6
Publication statusPublished - 2006

All Science Journal Classification (ASJC) codes

  • Finance
  • General Economics,Econometrics and Finance

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