Fluctuations and response in financial markets: the subtle nature of 'random' price changesJean-Philippe Bouchaud, Yuval Gefen, Marc Potters and Matthieu Wyart Quantitative Finance, 2004, vol. 4, issue 2, 176-190 Abstract: Using trades and quotes data from the Paris stock market, we show that the random walk nature of traded prices results from a very delicate interplay between two opposite tendencies: long-range correlated market orders that lead to super-diffusion (or persistence), and mean reverting 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. Date: 2004 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:4:y:2004:i:2:p:176-190 Ordering information: This journal article can be ordered from DOI: 10.1088/1469-7688/4/2/007 Access Statistics for this article Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral More articles in Quantitative Finance from Taylor & Francis Journals |
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