The long memory of efficient market

Fabrizio Lillo, J. Doyne Farmer, Fabrizio Lillo

Risultato della ricerca: Articlepeer review

177 Citazioni (Scopus)

Abstract

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.
Lingua originaleEnglish
pagine (da-a)1-19
Numero di pagine19
RivistaStudies in Nonlinear Dynamics and Econometrics
Volume8
Stato di pubblicazionePublished - 2004

All Science Journal Classification (ASJC) codes

  • Analysis
  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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