Related papers: When is cross impact relevant?
The price-bubble and crash process formation is theoretically investigated in a two-asset equilibrium model. Sufficient and necessary conditions are derived for the existence of average equilibrium price dynamics of different agent-based…
Lead/lag relationships are an important stylized fact at high frequency. Some assets follow the path of others with a small time lag. We provide indicators to measure this phenomenon using tick-by-tick data. Strongly asymmetric…
We consider a tick-by-tick model of price formation, in which buy and sell orders are modeled as self-exciting point processes (Hawkes process), similar to the one in [Bacry, Delattre, Hoffmann, Muzy, Modelling microstructure noise with…
In this work, we aim to reconcile several apparently contradictory observations in market microstructure: is the famous "square-root law" of metaorder impact, which decays with time, compatible with the random-walk nature of prices and the…
We discuss - in what is intended to be a pedagogical fashion - a criterion, which is a lower bound on a certain ratio, for when a stock (or a similar instrument) is not a good investment in the long term, which can happen even if the…
Financial markets across all asset classes are known to exhibit trends. These trends have been exploited by traders for decades. Here, we empirically measure when trends revert, based on 30 years of daily futures prices for equity indices,…
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…
In a financial market, for agents with long investment horizons or at times of severe market stress, it is often changes in the asset price that act as the trigger for transactions or shifts in investment position. This suggests the use of…
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…
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…
The available liquidity at any time in financial markets falls largely short of the typical size of the orders that institutional investors would trade. In order to reduce the impact on prices due to the execution of large orders, traders…
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…
We study the effect of drift in pure-jump transaction-level models for asset prices in continuous time, driven by point processes. The drift is as-sumed to arise from a nonzero mean in the efficient shock series. It follows that the drift…
We prove the existence of an equilibrium in a model with transaction costs and price impact where two agents are incentivized to trade towards a target. The two types of frictions -- price impact and transaction costs -- lead the agents to…
Cascades of events and extreme occurrences have garnered significant attention across diverse domains such as financial markets, seismology, and social physics. Such events can stem either from the internal dynamics inherent to the system…
This article provides a simple explanation of the asymptotic concavity of the price impact of a meta-order via the microstructural properties of the market. This explanation is made more precise by a model in which the local relationship…
Understanding disaggregate channels in the transmission of monetary policy is of crucial importance for effectively implementing policy measures. We extend the empirical econometric literature on the role of production networks in the…
A main focus in economics research is understanding the time series of prices of goods and assets. While statistical models using only the properties of the time series itself have been successful in many aspects, we expect to gain a better…
The goal of developing a firmer theoretical understanding of inhomogenous temporal processes -- in particular, the waiting times in some collective dynamical system -- is attracting significant interest among physicists. Quantifying the…
Distributions of assets returns exhibit a slight skewness. In this note we show that our model of endogenous price formation \cite{Reimann2006} creates an asymmetric return distribution if the price dynamics are a process in which…