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The slippage paradox

Author

Listed:
  • Steffen Bohn

    (LPMA - Laboratoire de Probabilités et Modèles Aléatoires - UPMC - Université Pierre et Marie Curie - Paris 6 - UPD7 - Université Paris Diderot - Paris 7 - CNRS - Centre National de la Recherche Scientifique)

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.

Suggested Citation

  • Steffen Bohn, 2011. "The slippage paradox," Working Papers hal-00574268, HAL.
    • Handle: RePEc:hal:wpaper:hal-00574268
    Note: View the original document on HAL open archive server: https://hal.science/hal-00574268v1
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    References listed on IDEAS

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    7. Jean-Philippe Bouchaud & Yuval Gefen & Marc Potters & Matthieu Wyart, 2003. "Fluctuations and response in financial markets: the subtle nature of `random' price changes," Science & Finance (CFM) working paper archive 0307332, Science & Finance, Capital Fund Management.
    8. Fabrizio Lillo & J. Doyne Farmer & Rosario N. Mantegna, 2003. "Master curve for price-impact function," Nature, Nature, vol. 421(6919), pages 129-130, January.
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    Cited by:

    1. 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.
    2. Amer M. Bakhach & Edward P.K. Tsang & V.L. Raju Chinthalapati, 2018. "TSFDC: A trading strategy based on forecasting directional change," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 25(3), pages 105-123, July.
    3. Andersen, Torben G. & Bondarenko, Oleg, 2014. "Reflecting on the VPIN dispute," Journal of Financial Markets, Elsevier, vol. 17(C), pages 53-64.

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