Related papers: Permanent market impact can be nonlinear
We propose a novel framework for modeling time-varying persistence in economic time series, allowing for smoothly evolving heterogeneity in shock dynamics. We leverage localized regression techniques to flexibly identify changes in…
We study a financial model with a non-trivial price impact effect. In this model we consider the interaction of a large investor trading in an illiquid security, and a market maker who is quoting prices for this security. We assume that the…
We study the collective behavior of interacting agents in a simple model of market economics originally introduced by N{\o}rrelykke and Bak. A general theoretical framework for interacting traders on an arbitrary network is presented, with…
We extend the "No-dynamic-arbitrage and market impact"-framework of Jim Gatheral [Quantitative Finance, 10(7): 749-759 (2010)] to the multi-dimensional case where trading in one asset has a cross-impact on the price of other assets. From…
We study an optimal execution problem with uncertain market impact to derive a more realistic market model. We construct a discrete-time model as a value function for optimal execution. Market impact is formulated as the product of a…
We study a continuous-time version of the intermediation model of Grossman and Miller (1988). To wit, we solve for the competitive equilibrium prices at which liquidity takers' demands are absorbed by dealers with quadratic inventory costs,…
This paper is devoted to the important yet unexplored subject of crowding effects on market impact, that we call "co-impact". Our analysis is based on a large database of metaorders by institutional investors in the U.S. equity market. We…
Energy market designs with non-merchant storage have been proposed in recent years, with the aim of achieving optimal market integration of storage. In order to handle the time-linking constraints that are introduced in such markets,…
This paper models firm-to-firm trade in a production network as a set of double auctions. Firms have multilateral market power, namely, can affect prices in both input and output markets. The size and division of surplus are endogenous and…
Financial models do not merely analyse markets, but actively shape them. This effect, known as performativity, describes how financial theories and the subsequent actions based on them influence market processes, by creating self-fulfilling…
A growing number of applications involve settings where, in order to infer heterogeneous effects, a researcher compares various units. Examples of research designs include children moving between different neighborhoods, workers moving…
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…
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…
We consider a discrete-time model of a financial market where a risky asset is bought and sold with transactions having a transient price impact. It is shown that the corresponding utility maximization problem admits a solution. We manage…
This paper investigates the investment behaviour of a large unregulated financial institution (FI) with CARA risk preferences. It shows how the FI optimizes its trading to account for market illiquidity using an extension of the…
Inference for fixed effects estimators is often unreliable due to Nickell- and incidental parameter biases. While these issues are well understood for classical two-dimensional panels, little is known about three-dimensional panel…
We develop methods for estimating how infinitesimal policy changes affect long-term outcomes in dynamic systems. We show that dynamic marginal policy effects (MPEs) can be identified via tractable reduced-form expressions, and can be…
We introduce a price impact model which accounts for finite market depth, tightness and resilience. Its coupled bid- and ask-price dynamics induce convex liquidity costs. We provide existence of an optimal solution to the classical problem…
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 consider a financial market in discrete time and study pricing and hedging conditional on the information available up to an arbitrary point in time. In this conditional framework, we determine the structure of arbitrage-free prices.…