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The slippage paradox

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  • Steffen Bohn

    ()
    (PMA - Laboratoire de Probabilités et Modèles Aléatoires - CNRS : UMR7599 - Université Pierre et Marie Curie - Paris VI - Université Paris-Diderot - Paris VII)

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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://hal.archives-ouvertes.fr/docs/00/57/42/68/PDF/SlippP006.pdf
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    Bibliographic Info

    Paper provided by HAL in its series Working Papers with number hal-00574268.

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    Date of creation: 04 Mar 2011
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    Handle: RePEc:hal:wpaper:hal-00574268

    Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00574268/en/
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    1. Jean-Philippe Bouchaud & Julien Kockelkoren & Marc Potters, 2004. "Random walks, liquidity molasses and critical response in financial markets," Science & Finance (CFM) working paper archive 500063, Science & Finance, Capital Fund Management.
    2. Lillo Fabrizio & Farmer J. Doyne, 2004. "The Long Memory of the Efficient Market," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 8(3), pages 1-35, September.
    3. 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.
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    Cited by:
    1. Torben G. Andersen & Oleg Bondarenko, 2013. "Reflecting on the VPN Dispute," CREATES Research Papers 2013-42, School of Economics and Management, University of Aarhus.
    2. Easley, David & López de Prado, Marcos M. & O'Hara, Maureen, 2014. "VPIN and the Flash Crash: A rejoinder," Journal of Financial Markets, Elsevier, vol. 17(C), pages 47-52.

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