Journal of Financial Economics Vol. 85 No. 3 2007
Order flow, dealer profitability, and price formation
Abstract
We analyze the dynamics of the S&P 500 futures price, finding both short- and long-run effects of order flow on price. While price moves strongly with the order flow in the short-run, the long-run impact is slightly negative, attributable to costly slippage from a hedging propensity in futures markets. We find strong evidence of a state dependence in the relation between price and order flow, using both volume and floor trader income measures as states. We also find that both the long- and short-run impacts of order flow are greater when dealer income is higher.
- DOI
- 10.1016/j.jfineco.2006.05.010
- Volume
- 85
- Issue
- 3
- Pages
- 857-887
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib