How Markets Slowly Digest Changes in Supply and Demand Jean-Philippe Bouchaud J. Doyne Farmer Fabrizio Lillo

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 How Markets Slowly Digest Changes in Supply and Demand 2009 Handbook of Financial Markets / arXiv 0809.0822 bouchaud2008-market-impact bouchaud2008-market-impact.txt, the project's staged copy 10558f3abcfe117b4b4606a39e56f32a86a61518 arxiv-open quantitative-finance

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 0 spans located by searching the stored text for the quote's exact words, allowing any whitespace between them Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. review Quotation withheld because this record is not cleared for redistribution. A TERM IS COINED BY AN OPERATIONAL TEST RATHER THAN BY A DESCRIPTION, FOR OBJECTS THAT DO NOT COME PRE-SORTED: to treat these different types IN A UNIFIED MANNER we classify them BASED ON WHETHER AN ORDER RESULTS IN AN IMMEDIATE TRANSACTION, in which case WE CALL IT AN EFFECTIVE MARKET ORDER, or whether it leaves a limit order sitting in the book, in which case WE CALL IT AN EFFECTIVE LIMIT ORDER. The definition is a procedure a reader could run, and it replaces the types the paper started from with a classification produced by an outcome Quotation withheld because this record is not cleared for redistribution. AND THEN THE QUALIFIER IS DROPPED BY ANNOUNCEMENT, SO THE FIELD'S ORDINARY WORD NOW DENOTES THE AUTHORS' CONSTRUCT: Quotation withheld The redefinition of an existing term is stated as a notational convenience, in one sentence, and every later use of the word carries it Quotation withheld because this record is not cleared for redistribution. A THREE-WORD COMPOUND TERM IS DEFINED ONE WORD AT A TIME, EACH WORD GIVEN ITS OWN CLAUSE: “auction” INDICATES that participants may place quotes stating the quantities and prices at which they are willing to trade; “continuous” INDICATES that they can update, cancel or place new quotes at any time; and “double” INDICATES that the market is symmetric between buyers and sellers. The name of the institution is decomposed into three separately checkable properties Quotation withheld because this record is not cleared for redistribution. WHETHER A CENTRAL CONCEPT IS VALID AT ALL IS ASKED AS A QUESTION, WITH COMPUTABILITY AS THE CRITERION: IS THE FUNDAMENTAL VALUE OF A STOCK OR A CURRENCY A VALID CONCEPT, in the sense that it CAN BE COMPUTED, AT LEAST AS A MATTER OF PRINCIPLE, WITH ARBITRARY ACCURACY with all information known at the time? The test proposed for whether a term denotes anything is whether a number could in principle be produced for it Quotation withheld because this record is not cleared for redistribution. VAGUENESS IS DECLARED INTENTIONAL, AND REMOVING IT IS NAMED AS THE POINT OF THE CHAPTER: WE ARE INTENTIONALLY BEING VAGUE AT THIS STAGE ABOUT THE DEFINITION of the return and the volume; DEFINING THESE MORE PRECISELY IS ONE OF THE MAIN POINTS OF THIS CHAPTER. The imprecision is positioned as a stage of the argument rather than as a defect of it Quotation withheld because this record is not cleared for redistribution. AN EQUATION IS WRITTEN AND THEN DECLARED NOT TO BE READ LITERALLY, WITH THE TWO PROPERTIES IT ASSERTS BOTH DENIED: the above equation SHOULD BE INTERPRETED RATHER LOOSELY: as we shall see below, IMPACT IS IN FACT NEITHER LINEAR NOR PERMANENT. The formalism is retained as an expository device after its content has been withdrawn Quotation withheld because this record is not cleared for redistribution. A SCARE-QUOTED TERM IS CONTRADICTED BY THE MEASUREMENT IN THE SAME SENTENCE: a very important empirical fact is that EVEN “highly liquid” MARKETS ARE IN FACT NOT THAT LIQUID. The quotation marks mark the received usage and the clause after them denies it, so the word survives with its reference reversed Quotation withheld because this record is not cleared for redistribution. A DEFINITION'S OWN STRICTNESS IS ASSESSED BY THE PEOPLE WHO WROTE IT: Quotation withheld The boundary of the term is traced back to the requirement that produced it, and the requirement is named Quotation withheld because this record is not cleared for redistribution. A QUANTITY IS DEFINED BY A COUNTERFACTUAL NOBODY CAN STAGE, AND THE IMPOSSIBILITY IS PART OF THE DEFINITION: WE DEFINE A MECHANICAL IMPACT AS WHAT HAPPENS IF SOMEONE PLACES AN ORDER in the order book IF THIS ORDER HAS NO EFFECT ON ANY FUTURE ORDERS - we are essentially asking what happens IF AN ORDER IS INJECTED INTO THE ORDER BOOK AT RANDOM, BUT NO ONE PAYS ANY ATTENTION TO IT. The term denotes the outcome of an intervention the market makes impossible by responding Quotation withheld because this record is not cleared for redistribution. A TERM IS DEFINED BY WHAT THE AGENTS CANNOT KNOW, NOT BY WHAT IS THE CASE: Quotation withheld The property named is an absence in someone's knowledge, and the definition says whose Quotation withheld because this record is not cleared for redistribution. A MECHANISM IS COINED AND ITS TWO HALVES ARE STATED AS A CONCESSION AND A QUALIFICATION: Quotation withheld The name is minted for a claim that concedes the standard result and then makes it conditional Quotation withheld because this record is not cleared for redistribution. A COMPARISON IS DECLARED MISLEADING UNLESS A THEORY THE FIELD DOES NOT HAVE IS SUPPLIED FIRST: Quotation withheld The condition on a valid comparison is named, and it is a theory rather than a measurement Quotation withheld because this record is not cleared for redistribution. A DEFINITION IS ATTRIBUTED TO THE FIELD AND QUALIFIED BY WHICH SENSE OF THE WORD IT DEFINES: Quotation withheld The parenthesis concedes that the term has other senses, and the definition is scoped to one of them Quotation withheld because this record is not cleared for redistribution. AND A SECOND SENSE OF THE SAME WORD IS GIVEN ITS OWN STRICT DEFINITION, IN OTHER PEOPLE'S VOCABULARY: Quotation withheld. One word given a second technical sense, defined strictly and in another field's vocabulary about this quote: The paper's other sense of the same word is mechanism [12] of this record - “a standard definition of market efficiency (in the informational sense)”. Neither sense is presented as the primary one, but that is visible only across both spans, so it is recorded here rather than asserted by either tag. Quotation withheld because this record is not cleared for redistribution. A MEASUREMENT THE FIELD RELIES ON IS SAID TO HAVE NO GOOD METHOD, AND THE SUBSTITUTE IS NAMED AS ROUGH: UNFORTUNATELY THERE ARE STILL NOT GOOD STATISTICAL METHODS FOR ASSIGNING CONFIDENCE INTERVALS FOR EXPONENTS OF POWER LAWS, particularly when the observations have long-memory - but THE ERRORS CAN BE ROUGHLY ASSESSED BY EXAMINING SUB-SAMPLES. The exponents are quoted throughout the literature; the uncertainty on them is admitted to be unavailable Quotation withheld because this record is not cleared for redistribution. what this limits: every cross-market claim: Quotation withheld Quotation withheld because this record is not cleared for redistribution. what this limits: the standing of the whole programme: THE WORK DESCRIBED HERE IS STILL IN AN EARLY STAGE, AND IS VERY MUCH IN FLUX ... OUR OWN VIEW IS STILL CHANGING AS NEW RESULTS APPEAR Quotation withheld because this record is not cleared for redistribution. what this limits: the order-splitting theory specifically: THE VALUE OF THE EXPONENT ... IS SLIGHTLY LARGER THAN THE VALUE 1.5 EXPECTED BY THE THEORY, and A MORE CAREFUL TESTING is needed Quotation withheld because this record is not cleared for redistribution. what this limits: the market-ecology account: IT WOULD BE EXTREMELY VALUABLE TO HAVE A COMPREHENSIVE EMPIRICAL STUDY THAT CONNECTS THE HETEROGENEITY OF MARKET PARTICIPANTS WITH THEIR STRATEGY - the data linking participants to strategies do not exist Quotation withheld because this record is not cleared for redistribution. what this limits: an instantaneous price as an efficient price reflecting known information: the review states there is no reason to believe that, because much information is latent and withheld Quotation withheld because this record is not cleared for redistribution. what this limits: high-frequency prices as equilibrium values: the review states equilibrium can make sense at best over a long time scale Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. eliminates: the heavy tail of order size dominating the statistic - a handful of very large orders would otherwise set the correlation almost by themselves, so the measured impact would describe those orders rather than the market · outcome (stated by the tagger, no quotation): held Quotation withheld because this record is not cleared for redistribution. revealed liquidity Quotation withheld because this record is not cleared for redistribution. latent liquidity Quotation withheld because this record is not cleared for redistribution. effective market order Quotation withheld because this record is not cleared for redistribution. off-book market Quotation withheld because this record is not cleared for redistribution. upstairs market Quotation withheld because this record is not cleared for redistribution. Marketable limit orders Quotation withheld because this record is not cleared for redistribution. crossing limit orders Quotation withheld because this record is not cleared for redistribution. market impact Quotation withheld because this record is not cleared for redistribution. liquidity Quotation withheld because this record is not cleared for redistribution. long-memory processes Quotation withheld because this record is not cleared for redistribution. quotes Quotation withheld because this record is not cleared for redistribution. orders Quotation withheld because this record is not cleared for redistribution. THE INDEXING / PROXY RELATION - 'from' STANDS IN FOR 'to'. We have no type for it: 'causes' asserts production, and 'operationalised-as' says the authors CHOSE a measure, whereas a proxy claim says THIS STANDS IN FOR WHAT WE ACTUALLY CARE ABOUT AND WE KNOW IT IS NOT THE SAME THING. Measured at 8% of papers. A proxy held UNDER A THEORY, not asserted: 'under the theory that urgency is a proxy for informativeness, empirical work on the subject has often defined an informed trade as one that is executed by a market order'. The whole downstream definition depends on a substitution the sentence flags as theoretical. Quotation withheld because this record is not cleared for redistribution. IS-AN-ASPECT-OF / IS-DEFINED-IN-TERMS-OF, AND NONE OF THE EIGHT TYPES HOLDS IT. 'liquidity REFERS…' - the paper gives 'liquidity' no content of its own; it is the size parameter of the other quantity. 'operationalised-as' is the nearest type and the gate refused it correctly: the cue vocabulary wants 'measured / defined as / quantified / computed as', and 'refers to the scale of' is a definitional gloss, not a measurement procedure. 'part-of' is wrong because a scale is not a component. 'same-as' is wrong because the two are not interchangeable - one is a response, the other is how big that response is. Filed rather than forced: typing this as 'operationalised-as' would put a measurement claim in the corpus that the paper does not make. Reached 2026-08-26 by the project during the schema 0.3 pass. Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. revealed liquidity latent liquidity strength of the relation: 1 Quotation withheld because this record is not cleared for redistribution. off-book market upstairs market the relation itself is separately evidenced · strength of the relation: 1 · note: FILED AS 'renamed-across-fields' BECAUSE THE GATE'S TEST IS THE RIGHT ONE - both names present, a naming cue ('what is called'), and a shared definition in the next sentence. But the axis is INSTITUTIONAL rather than disciplinary, and the type name says 'fields'. Recording the mismatch rather than forcing a different type: the vocabulary has one label for what are at least four axes of renaming - discipline, language, profession, and venue. · the relation stated: the two exchanges call the same bilateral venue by different local names Quotation withheld because this record is not cleared for redistribution. Marketable limit orders crossing limit orders the relation itself is separately evidenced · strength of the relation: 1 · note: 'Marketable limit orders (also called crossing limit orders)' - a bare parenthetical synonym, no hedge. · the relation stated: the review gives the second name parenthetically as an alternative for the first Quotation withheld because this record is not cleared for redistribution. quotes orders the relation itself is separately evidenced · strength of the relation: 1 · note: 'also called' - an explicit alias with both names inside the span. Confidence 0.85 rather than higher because both words are ordinary English and only this parenthesis ties them. · the relation stated: quotes (also called orders) Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. Quotation withheld because this record is not cleared for redistribution. market impact Quotation withheld because this record is not cleared for redistribution. order flow Quotation withheld because this record is not cleared for redistribution. bid-ask spread Quotation withheld because this record is not cleared for redistribution. liquidity Quotation withheld because this record is not cleared for redistribution. tatonnement Quotation withheld because this record is not cleared for redistribution. long-memory of order flow Quotation withheld because this record is not cleared for redistribution. market efficiency about this quote: QUOTE RECOVERED FROM THE PAPER'S OWN CHARACTERS. The recorded quote was LETTERS-ONLY IDENTICAL to this stretch of the staged text but not an exact substring of it - spaces, hyphens, ligature glyphs or mathematical operators differed, so it could never anchor. This is the file's own text between the same two letters: not produced by a rule about the damage, copied out of the file. Round-trip checked (the recovered span is letters-only equal to the original) and length-checked. The text as originally recorded is kept in evidence as extracted. Quotation withheld because this record is not cleared for redistribution. the liquidity paradox Quotation withheld because this record is not cleared for redistribution. Bayesian Quotation withheld because this record is not cleared for redistribution. confidence-interval Quotation withheld because this record is not cleared for redistribution. hypothesis-testing Quotation withheld because this record is not cleared for redistribution. mean Quotation withheld because this record is not cleared for redistribution. regression Quotation withheld because this record is not cleared for redistribution. standard-deviation about this quote: PAGE FURNITURE IS SPLICED INTO THE 'evidence' QUOTE - a running head and a page number: 'INFORMATION, LIQUIDITY & EFFICIENCY 13'. The words on either side of it were never continuous on the page; read the quote with it deleted. Quotation withheld because this record is not cleared for redistribution. standard-error Quotation withheld because this record is not cleared for redistribution. statistical-significance Quotation withheld because this record is not cleared for redistribution. variance about this quote: DAMAGED GLYPHS IN THIS QUOTE: (cid:96). These are raw PDF font glyph indices that leaked out in place of the characters they stand for - usually a mathematical operator. The quote is verbatim to the staged text and its anchor is sound; the STAGED TEXT is what is damaged. NOT repaired: the cid-to-character mapping is defined by the font embedded in that particular PDF, so guessing it would produce a clean and unverifiable quote. Repair needs the source PDF and is a re-staging job. Quotation withheld because this record is not cleared for redistribution.

The full text of this article is not redistributable, so it is not included here. The evidence sentences are withheld with it; the tag layer and its grounding status remain. The article itself is at https://arxiv.org/abs/0809.0822.