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.