KILLED · already priced
Hypothesis
Order flow is long-memory, trade signs are positively autocorrelated for hours (Lillo-Farmer). So recent net flow predicts continued same-direction pressure.
Math: long-memory sign process
The sign autocorrelation decays as a slow power law:
$$ C(\tau) = \langle \epsilon_t\,\epsilon_{t+\tau}\rangle \sim \tau^{-\gamma},\ \ \gamma<1 $$
Method
Estimate sign-ACF, trade continuation on persistent net flow, costs + latency applied.
Results
| Sign ACF long-memory | confirmed |
| Price impact of predictable flow | permanent ≈ 0 |
| Net continuation edge | − |
The long memory is real but price does not drift with it: market makers anticipate the autocorrelated flow and absorb it (the famous "efficiency despite predictable flow"). Predictable order flow, unpredictable price. Killed.
Predictable order flow is not predictable returns, liquidity providers price the predictability out. The market can be efficient even when flow is forecastable.