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RFS Advance Access published online on March 26, 2004
Review of Financial Studies, doi:10.1093/rfs/hhg057
Review of Financial Studies © The Society for Financial Studies 2004; all rights reserved
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The Review of Financial Studies © The Society for Financial Studies 2004; all rights reserved.

Original Articles

Technical Analysis and Liquidity Provision

Kenneth A. Kavajecz 1 and Elizabeth R. Odders-White 1*
1 University of Wisconsin - Madison, 975 University Avenue, Madison, WI 53706, Madison

* To whom correspondence should be addressed. E-mail: ewhite{at}bus.wisc.edu.


  Abstract

The apparent conflict between the level of resources dedicated to technical analysis by practitioners and academic theories of market efficiency is a long-standing puzzle. We explore a previously unexamined feature of technical analysis - namely, its relation to liquidity provision. We demonstrate that support and resistance levels coincide with peaks in depth on the limit order book and moving average forecasts reveal information about the relative position of depth on the book. Furthermore, we show that these relationships stem from technical rules locating depth already in place on the limit order book.


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[Abstract] [Full Text] [PDF]


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