Notes
† This brings up the point raised earlier about the sense in which a continuous double auction expresses the true clearing price. In the theory proposed in Lillo et al. (Citation2005) we propose that the long-memory of revealed supply and demand is caused by the discrepancy between hidden trading orders and revealed trading orders. For strategic reasons hidden orders are split and are only revealed incrementally. Thus according to this theory, the observed long-memory is caused by a failure of market clearing, i.e. by the slow pace of tatonnement.