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The slippage paradox

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  • Steffen Bohn

    (PMA)

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    Abstract

    Buying or selling assets leads to transaction costs for the investor. On one hand, it is well know to all market practionaires that the transaction costs are positive on average and present therefore systematic loss. On the other hand, for every trade, there is a buy side and a sell side, the total amount of asset and the total amount of cash is conserved. I show, that the apparently paradoxical observation of systematic loss of all participants is intrinsic to the trading process since it corresponds to a correlation of outstanding orders and price changes.

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    File URL: http://arxiv.org/pdf/1103.2214
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1103.2214.

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    Date of creation: Mar 2011
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    Handle: RePEc:arx:papers:1103.2214

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    1. J. -P. Bouchaud & J. Kockelkoren & M. Potters, 2004. "Random walks, liquidity molasses and critical response in financial markets," Papers cond-mat/0406224, arXiv.org, revised Jun 2004.
    2. Jean-Philippe Bouchaud & Yuval Gefen & Marc Potters & Matthieu Wyart, 2003. "Fluctuations and response in financial markets: the subtle nature of `random' price changes," Papers cond-mat/0307332, arXiv.org, revised Aug 2003.
    3. Fabrizio Lillo & J. Doyne Farmer, 2003. "The long memory of the efficient market," Papers cond-mat/0311053, arXiv.org, revised Jul 2004.
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    Cited by:
    1. Andersen, Torben G. & Bondarenko, Oleg, 2014. "Reflecting on the VPIN dispute," Journal of Financial Markets, Elsevier, Elsevier, vol. 17(C), pages 53-64.
    2. Easley, David & López de Prado, Marcos M. & O'Hara, Maureen, 2014. "VPIN and the Flash Crash: A rejoinder," Journal of Financial Markets, Elsevier, Elsevier, vol. 17(C), pages 47-52.

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