
An old model can shed new light on how flows shape prices
Market microstructure theory may also explain long-term patterns in stock markets

A 10-year-old model can make sense of recent findings on the link between trade flows and stock prices, according to a leading quant.
Jean-Philippe Bouchaud, chairman of systematic investment firm Capital Fund Management, says latent liquidity theory – originally developed by CFM to model the immediate effect of its trading on prices – can explain results from new studies that show how market flows push around stock prices over far longer periods.
In a working paper published in August
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