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The slippage paradox

  • Steffen Bohn


    (LPMA - Laboratoire de Probabilités et Modèles Aléatoires - UPMC - Université Pierre et Marie Curie - Paris 6 - UP7 - Université Paris Diderot - Paris 7 - CNRS)

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    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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    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
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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,, revised Jun 2004.
    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,, revised Aug 2003.
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