A theory for long-memory in supply and demand

F. Lillo, Szabolcs Mike and J. Farmer

Papers from arXiv.org

Abstract: Recent empirical studies have demonstrated long-memory in the signs of orders to buy or sell in financial markets [2, 19]. We show how this can be caused by delays in market clearing. Under the common practice of order splitting, large orders are broken up into pieces and executed incrementally. If the size of such large orders is power law distributed, this gives rise to power law decaying autocorrelations in the signs of executed orders. More specifically, we show that if the cumulative distribution of large orders of volume v is proportional to v to the power -alpha and the size of executed orders is constant, the autocorrelation of order signs as a function of the lag tau is asymptotically proportional to tau to the power -(alpha - 1). This is a long-memory process when alpha

Date: 2004-12, Revised 2005-03
References: Add references at CitEc
Citations: View citations in EconPapers (51)

Downloads: (external link)
http://arxiv.org/pdf/cond-mat/0412708 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:cond-mat/0412708

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().