Related papers: Impact is not just volatility
A new approach to obtaining market--directional information, based on a non-stationary solution to the dynamic equation "future price tends to the value that maximizes the number of shares traded per unit time" [1] is presented. In our…
We make an extensive empirical study of the market impact of large orders (metaorders) executed in the U.S. equity market between 2007 and 2009. We show that the square root market impact formula, which is widely used in the industry and…
The market impact (MI) of Volume Weighted Average Price (VWAP) orders is a convex function of a trading rate, but most empirical estimates of transaction cost are concave functions. How is this possible? We show that isochronic (constant…
In financial market microstructure, there are two enigmatic empirical laws: (i) the market-order flow has predictable persistence due to metaorder splitters by institutional investors, well formulated as the Lillo-Mike-Farmer model.…
Using Trades and Quotes data from the Paris stock market, we show that the random walk nature of traded prices results from a very delicate interplay between two opposite tendencies: long-range correlated market orders that lead to…
We study a class of heterogeneous agent-based models which are based on a basic set of principles, and the most fundamental operations of an economic system: trade and product transformations. A basic guiding principle is scale invariance,…
Arguably the most important problem in quantitative finance is to understand the nature of stochastic processes that underlie market dynamics. One aspect of the solution to this problem involves determining characteristics of the…
Prices in financial markets exhibit extreme jumps far more often than can be accounted for by external news. Further, magnitudes of price changes are correlated over long times. These so called stylized facts are quantified by scaling laws…
We study the problem of what causes prices to change. We define the mechanical impact of a trading order as the change in future prices in the absence of any future changes in decision making, and its it informational impact as the…
Cities are often compared through scaling laws, usually expressed as power-law relations between population size and aggregate urban quantities related to infrastructure, socioeconomic activity, or environmental impacts. These laws are…
This paper develops a comprehensive theoretical framework that imports concepts from stochastic thermodynamics to model price impact and characterize the feasibility of round-trip arbitrage in financial markets. A trading cycle is treated…
The article is an empirical study of market impact through order book events. It describes a mechanism of extracting an average participation rate and a market impact of small orders which represent individual slices of large metaorders.…
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…
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 introduce a first theory of price impact in presence of an interest-rates term structure. We explain how one can formulate instantaneous and transient price impact on bonds with different maturities, including a cross price impact that…
In financial markets, greater volatility is usually considered synonym of greater risk and instability. However, large market downturns and upturns are often preceded by long periods where price returns exhibit only small fluctuations. To…
The distribution of price returns for a class of uncorrelated diffusive dynamics is considered. The basic assumptions are (1) that there is a "consensus" value associated with a stock, and (2) that the rate of diffusion depends on the…
Econophysics and econometrics agree that there is a correlation between volume and volatility in a time series. Using empirical data and their distributions, we further investigate this correlation and discover new ways that volatility and…
In this paper we present an interacting-agent model of stock markets. We describe a stock market through an Ising-like model in order to formulate the tendency of traders getting to be influenced by the other traders' investment attitudes…
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…