Fluctuations and response in financial markets: the subtle nature of 'random' price changes
Using trades and quotes data from the Paris stock market, we show that the random walk nature of traded prices results from a very delilcated interplay between two opposite tendencies: long-range correlated market orders that lead to super-diffusion (or persistence), and mean revrting limit orders t...
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| Vydané v: | Quantitative finance Ročník 4; číslo 2; s. 176 - 190 |
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| Hlavní autori: | , , , |
| Médium: | Journal Article |
| Jazyk: | English |
| Vydavateľské údaje: |
IOP Publishing Ltd
01.04.2004
Taylor and Francis Journals |
| Edícia: | Quantitative Finance |
| ISSN: | 1469-7688, 1469-7696 |
| On-line prístup: | Získať plný text |
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| Shrnutí: | Using trades and quotes data from the Paris stock market, we show that the random walk nature of traded prices results from a very delilcated interplay between two opposite tendencies: long-range correlated market orders that lead to super-diffusion (or persistence), and mean revrting limit orders that lead to sub-diffusion (or anti-persistence). We define and study a model where the price, at any instant, is the result of the impact of all past trades, mediated by a non-constant 'propagator' in time that describes the response of the market to a single trade. Within this model, the market is shown to be, in a precise sense, at a critical point, where the price is purely diffusive and the average response function almost constant. We find empirically, and discuss theoretically, a fluctuation-response relation. We also discuss the fraction of truly informed market orders, that correctly anticipate short-term moves, and find that it is quite small. |
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| ISSN: | 1469-7688 1469-7696 |
| DOI: | 10.1080/14697680400000022 |