Related papers: How efficiency shapes market impact
This work extends and complements our previous theoretical paper on the subtle interplay between impact, order flow and volatility. In the present paper, we generate synthetic market data following the specification of that paper and show…
Recent technological developments have changed the fundamental ways stock markets function, bringing regulatory instances to assess the benefits of these developments. In parallel, the ongoing machine learning revolution and its multiple…
This paper introduces a novel algorithm for generating realistic metaorders from public trade data, addressing a longstanding challenge in price impact research that has traditionally relied on proprietary datasets. Our method effectively…
We present an empirical study of price reversion after the executed metaorders. We use a data set with more than 8 million metaorders executed by institutional investors in the US equity market. We show that relaxation takes place as soon…
Market impact has become a subject of increasing concern among academics and industry experts. We put forward a price impact model which considers the heteroscedasticity of price in the time dimension and dependency between permanent impact…
The trade size $\omega$ has direct impact on the price formation of the stock traded. Econophysical analyses of transaction data for the US and Australian stock markets have uncovered market-specific scaling laws, where a master curve of…
We investigate present some new statistical properties of order books. We analyse data from the Nasdaq and investigate (a) the statistics of incoming limit order prices, (b) the shape of the average order book, and (c) the typical life time…
The latent order book of \cite{donier2015fully} is one of the most promising agent-based models for market impact. This work extends the minimal model by allowing agents to exhibit mean-reversion, a commonly observed pattern in real…
In this paper, inspired by the work of Megiddo on the formation of preferences and strategic analysis, we consider an early market model studied in the field of economic theory, in which each trader's utility may be influenced by the…
Latent order book models have allowed for significant progress in our understanding of price formation in financial markets. In particular they are able to reproduce a number of stylized facts, such as the square-root impact law. An…
In this paper we explore optimal liquidation in a market populated by a number of heterogeneous market makers that have limited inventory-carrying and risk-bearing capacity. We derive a reduced form model for the dynamic of their aggregated…
We propose a non-linear observation-driven version of the Hasbrouck (1991) model for dynamically estimating trades' market impact and information content. We find that market impact displays an intraday pattern superimposed with large…
Modeling the impact of the order flow on asset prices is of primary importance to understand the behavior of financial markets. Part I of this paper reported the remarkable improvements in the description of the price dynamics which can be…
A consistency criterion for price impact functions in limit order markets is proposed that prohibits chain arbitrage exploitation. Both the bid-ask spread and the feedback of sequential market orders of the same kind onto both sides of the…
In this article we revisit the classic problem of tatonnement in price formation from a microstructure point of view, reviewing a recent body of theoretical and empirical work explaining how fluctuations in supply and demand are slowly…
Using more than 6.7 billions of trades, we explore how the tick-by-tick dynamics of limit order books depends on the aggregate actions of large investment funds on a much larger (quarterly) timescale. In particular, we find that the…
Buying and selling stocks causes price changes, which are described by the price impact function. To explain the shape of this function, we study the Island ECN orderbook. In addition to transaction data, the orderbook contains information…
We present an extended version of the recently proposed "LLOB" model for the dynamics of latent liquidity in financial markets. By allowing for finite cancellation and deposition rates within a continuous reaction-diffusion setup, we…
In this chapter we review some recent results on the dynamics of price formation in financial markets and its relations with the efficient market hypothesis. Specifically, we present the limit order book mechanism for markets and we…
Financial markets populated by human traders often exhibit "market impact", where the traders' quote-prices move in the direction of anticipated change, before any transaction has taken place, as an immediate reaction to the arrival of a…