Related papers: How efficiency shapes market impact
This paper introduces a new representation for the actions of a market maker in an order-driven market. This representation uses scaled beta distributions, and generalises three approaches taken in the artificial intelligence for market…
Optimal execution, i.e., the determination of the most cost-effective way to trade volumes in continuous trading sessions, has been a topic of interest in the equity trading world for years. Electricity intraday trading slowly follows this…
In financial markets, the order flow, defined as the process assuming value one for buy market orders and minus one for sell market orders, displays a very slowly decaying autocorrelation function. Since orders impact prices, reconciling…
The impact of trades on asset prices is a crucial aspect of market dynamics for academics, regulators and practitioners alike. Recently, universal and highly nonlinear master curves were observed for price impacts aggregated on all…
In a financial exchange, market impact is a measure of the price change of an asset following a transaction. This is an important element of market microstructure, which determines the behaviour of the market following a trade. In this…
We study the price impact of order book events - limit orders, market orders and cancelations - using the NYSE TAQ data for 50 U.S. stocks. We show that, over short time intervals, price changes are mainly driven by the order flow…
This paper deals with a stochastic order-driven market model with waiting costs, for order books with heterogenous traders. Offer and demand of liquidity drives price formation and traders anticipate future evolutions of the order book. The…
We use standard physics techniques to model trading and price formation in a market under the assumption that order arrival and cancellations are Poisson random processes. This model makes testable predictions for the most basic properties…
This paper examines the role of algorithmic trading in modern financial markets. Additionally, order types, characteristics, and special features of algorithmic trading are described under the lens provided by the large development of high…
Trading algorithms that execute large orders are susceptible to exploitation by order anticipation strategies. This paper studies the influence of order anticipation strategies in a multi-investor model of optimal execution under transient…
We propose a static equilibrium model for limit order book where profit-maximizing investors receive an information signal regarding the liquidation value of the asset and execute via a competitive dealer with random initial inventory, who…
Using high-quality data, we report several statistical regularities of equity auctions in the Paris stock exchange. First, the average order book density is linear around the auction price at the time of auction clearing and has a large…
The efficient market hypothesis (EMH) famously stated that prices fully reflect the information available to traders. This critically depends on the transfer of information into prices through trading strategies. Traders optimise their…
We study the problem of optimal trading using general alpha predictors with linear costs and temporary impact. We do this within the framework of stochastic optimization with finite horizon using both limit and market orders. Consistently…
This paper addresses the challenges faced in large-volume trading, where executing substantial orders can result in significant market impact and slippage. To mitigate these effects, this study proposes a volatility-volume-based order…
This paper examines a trade execution game for two large traders in a generalized price impact model. We incorporate a stochastic and sequentially dependent factor that exogenously affects the market price into financial markets. Our model…
We compare the predictions of the stationary Kyle model, a microfounded multi-step linear price impact model in which market prices forecast fundamentals through information encoded in the order flow, with those of the propagator model, a…
Is the large influence that mutual funds assert on the U.S. financial system spread across many funds, or is it is concentrated in only a few? We argue that the dominant economic factor that determines this is market efficiency, which…
We propose to study market efficiency from a computational viewpoint. Borrowing from theoretical computer science, we define a market to be \emph{efficient with respect to resources $S$} (e.g., time, memory) if no strategy using resources…
This paper develops a model for option market making in which the hedging activity of the market maker generates price impact on the underlying asset. The option order flow is modeled by Cox processes, with intensities depending on the…