medium · Market Microstructure
If a stock's Variance Ratio V R(k) is significantly less than 1.0, what does this suggest about the price impact and its decay?
- There is a high degree of transitory volatility that mean-reverts.
- The price moves are predominantly permanent and follow a random walk.
- The bid-ask spread is too narrow to cause mean reversion.
- The market is trending, and impact is accumulating.
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