Related papers: Permanent market impact can be nonlinear
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…
The direct effect of one eventon another can be defined and measured byholding constant all intermediate variables between the two.Indirect effects present conceptual andpractical difficulties (in nonlinear models), because they cannot be…
Post Modigliani and Miller (1958), the concept of usage of arbitrage created a permanent mark on the discourses of financial framework. The arbitrage process is largely based on information dissemination amongst the stakeholders operating…
In illiquid markets, option traders may have an incentive to increase their portfolio value by using their impact on the dynamics of the underlying. We provide a mathematical framework within which to value derivatives under market impact…
While the market impact of aggressive orders has been extensively studied, the impact of passive orders, those executed through limit orders, remains less understood. The goal of this paper is to investigate passive market impact by…
Traders constantly consider the price impact associated with changing their positions. This paper seeks to understand how price impact emerges from the quoting strategies of market makers. To this end, market making is modeled as a dynamic…
The vast majority of market impact studies assess each product individually, and the interactions between the different order flows are disregarded. This strong approximation may lead to an underestimation of trading costs and possible…
We derive an explicit solution for deterministic market impact parameters in the Graewe and Horst (2017) portfolio liquidation model. The model allows to combine various forms of market impact, namely instantaneous, permanent and temporary.…
This paper is devoted to the important yet little explored subject of the market impact of limit orders. Our analysis is based on a proprietary database of metaorders - large orders that are split into smaller pieces before being sent to…
While the long-ranged correlation of market orders and their impact on prices has been relatively well studied in the literature, the corresponding studies of limit orders and cancellations are scarce. We provide here an empirical study of…
This note explores the consequences of nonlinear price impact functions on price dynamics within the chartist-fundamentalist framework. Price impact functions may be nonlinear with respect to trading volume. As indicated by recent empirical…
Recent years have seen a resurgence in interest in marketing mix models (MMMs), which are aggregate-level models of marketing effectiveness. Often these models incorporate nonlinear effects, and either implicitly or explicitly assume that…
We consider the optimal solutions to the trade execution problem in the two different classes of i) fully adapted or adaptive and ii) deterministic or static strategies, comparing them. We do this in two different benchmark models. The…
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…
Ensuring sufficient liquidity is one of the key challenges for designers of prediction markets. Various market making algorithms have been proposed in the literature and deployed in practice, but there has been little effort to evaluate…
Linear regressions with period and group fixed effects are widely used to estimate policies' effects: 26 of the 100 most cited papers published by the American Economic Review from 2015 to 2019 estimate such regressions. It has recently…
This paper studies the optimal investment problem with random endowment in an inventory-based price impact model with competitive market makers. Our goal is to analyze how price impact affects optimal policies, as well as both pricing rules…
This working paper presents a comprehensive study on the development and analysis of various electricity market models, focusing on continuous, discrete, and fractional-order approaches. The continuous model captures the ongoing…
This note complements the inspiring work on dimensional analysis and market microstructure by Kyle and Obizhaeva [18]. Following closely these authors, our main result shows by a similar argument as usually applied in physics the following…
Constant price impact functions, much used in financial literature, are shown to give rise to paradoxical outcomes since they do not allow for proper predictability removal: for instance the exploitation of a single large trade whose size…