Stock market trends last for a long time because the sheer volume of money takes physical time to squeeze through available trade channels.
April 25, 2026
Original Paper
The Size Mechanism Hypothesis: Capital Absorption Time, Not Information Diffusion Speed, Determines Trend Magnitude in Foreign Exchange Markets
SSRN · 6616161
The Takeaway
Market momentum is a product of financial plumbing rather than human psychology or slow news cycles. Large amounts of capital cannot be moved instantly without crashing the price, so they must be dripped into the market over weeks or months. This physical constraint of liquidity creates the long-term trends that traders try to follow. Most investors assume that price moves reflect a slow reaction to new information. The reality is that the move is slow because the pipes of the financial system are too small for the ocean of money being moved. Trends are the visible evidence of capital slowly finding its way into a new position.
From the abstract
The standard explanation for momentum attributes trend persistence to slow information diffusion among heterogeneous investors. This paper proposes and tests an alternative: trends persist because large capital repositioning takes time to be absorbed by available liquidity. The key empirical prediction is that trade duration, not economic surprise magnitude, should determine trend outcomes. Using 35,072 economic calendar events matched to 3,271 algorithmic trading signals across six USD currency