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.
|Numero di pagine||19|
|Rivista||Studies in Nonlinear Dynamics and Econometrics|
|Stato di pubblicazione||Published - 2004|
All Science Journal Classification (ASJC) codes
- Social Sciences (miscellaneous)
- Economics and Econometrics