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Feedback Trading and Intermittent Market Turbulence

This paper studies the potential for complex asset return dynamics in a high-frequency, non-fundamental feedback trading model. Price adjustment is driven by the time-varying price impact of net orderflow. In tranquil times feedback trading has no impact on the price level. Given feedback trading intensities, as asset liquidity declines the market progressively becomes stressed and turbulent. Returns and absolute returns persistence are found to display power-law features, and episodes of turbulence are intermittent.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe0847.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0847.

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Date of creation: Oct 2008
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Handle: RePEc:cam:camdae:0847
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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