Related papers: How efficiency shapes market impact

Using a large database of 8 million institutional trades executed in the U.S. equity market, we establish a clear crossover between a linear market impact regime and a square-root regime as a function of the volume of the order. Our…

We review the evidence that the erratic dynamics of markets is to a large extent of endogenous origin, i.e. determined by the trading activity itself and not due to the rational processing of exogenous news. In order to understand why and…

In this work, we present a continuous-time large-population game for modeling market microstructure betweentwo consecutive trades. The proposed modeling framework is inspired by our previous work [23]. In this framework, the Limit Order…

In auction and matching markets, estimating the welfare effects of demand-side treatments is challenging because of spillovers through the mechanism. We develop a quasi-experimental approach that avoids parametric assumptions typically…

Many independent studies on stocks and futures contracts have established that market impact is proportional to the square-root of the executed volume. Is market impact quantitatively similar for option markets as well? In order to answer…

A great deal of academic and theoretical work has been dedicated to optimal liquidation of large orders these last twenty years. The optimal split of an order through time (`optimal trade scheduling') and space (`smart order routing') is of…

We introduce and study a simple model of a limit order-driven market. Traders in this model can either trade at the market price or place a limit order, i.e. an instruction to buy (sell) a certain amount of the stock if its price falls…

We consider the learning dynamics of a single reinforcement learning optimal execution trading agent when it interacts with an event driven agent-based financial market model. Trading takes place asynchronously through a matching engine in…

A large body of empirical literature has shown that market impact of financial prices is transient. However, from a theoretical standpoint, the origin of this temporary nature is still unclear. We show that an implied transient impact…

We propose a series of simple models for the microstructure of a double auction market without intermediaries. We specialize to those markets, such interdealer broker markets, which are dominated by professional traders, who trade mainly…

Constant and symmetric price impact functions, most commonly used in agent-based market modelling, are shown to give rise to paradoxical and inconsistent outcomes in the simplest case of arbitrage exploitation when open-hold-close actions…

How does competition in markets for information affect the creation and division of surplus? We study this question in a search environment in which an agent searches sequentially for a high-quality good and learns about the quality of…

Commonly used limit order book attributes are empirically considered based on NASDAQ ITCH data. It is shown that some of them have the properties drastically different from the ones assumed in many market dynamics study. Because of this…

Policy-relevant treatment effect estimation in a marketplace setting requires taking into account both the direct benefit of the treatment and any spillovers induced by changes to the market equilibrium. The standard way to address these…

We study the relaxation dynamics of the bid-ask spread and of the midprice after a sudden, large variation of the spread, corresponding to a temporary crisis of liquidity in a double auction financial market. We find that the spread decays…

In this study, we introduce a physical model inspired by statistical physics for predicting price volatility and expected returns by leveraging Level 3 order book data. By drawing parallels between orders in the limit order book and…

We introduce a microscopic model for the dynamics of the order book to study how the lack of liquidity influences price fluctuations. We use the average density of the stored orders (granularity $g$) as a proxy for liquidity. This leads to…

We analyze the efficiency of markets with friction, particularly power markets. We model the market as a dynamic system with $(d_t;\,t\geq 0)$ the demand process and $(s_t;\,t\geq 0)$ the supply process. Using stochastic differential…

We explore the striking mathematical connections that exist between market scoring rules, cost function based prediction markets, and no-regret learning. We show that any cost function based prediction market can be interpreted as an…

We consider a broker who has to place a large order which consumes a sizable part of average daily trading volume. The broker's aim is thus to minimize execution costs he incurs from the adverse impact of his trades on market prices. By…