Exactly solvable model for the diffusive price-dynamics paradox under long-range correlated market-order flow
Why predictable trading patterns don't break efficient markets
Financial markets show a strange contradiction: prices behave randomly over time, yet the orders that move prices follow predictable patterns. A new mathematical model resolves this paradox by showing that the square-root relationship between trade size and price movement is the missing piece—it ensures prices stay random even when order flow is predictable.
This explains why markets remain efficient and unpredictable despite the fact that large traders' moves can be forecast. Understanding this mechanism helps regulators and market participants grasp the real-world limits of prediction-based trading strategies, and clarifies which market rules (like the square-root price-impact law) are essential for keeping financial markets fair and stable.