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Hidden Order in Trades Predicts the Size of Price Moves

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  • Mainak Singha

Abstract

Financial markets exhibit an apparent paradox: while directional price movements remain largely unpredictable--consistent with weak-form efficiency--the magnitude of price changes displays systematic structure. Here we demonstrate that real-time order-flow entropy, computed from a 15-state Markov transition matrix at second resolution, predicts the magnitude of intraday returns without providing directional information. Analysis of 38.5 million SPY trades over 36 trading days reveals that conditioning on entropy below the 5th percentile increases subsequent 5-minute absolute returns by a factor of 2.89 (t = 12.41, p

Suggested Citation

  • Mainak Singha, 2025. "Hidden Order in Trades Predicts the Size of Price Moves," Papers 2512.15720, arXiv.org.
    • Handle: RePEc:arx:papers:2512.15720
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    File URL: http://arxiv.org/pdf/2512.15720
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