2
$\begingroup$

What is known about the question: If someone buys or sells a huge amount of some asset how the price would change ?

Of course, it depends on the kind of assets and other context. My main interest is liquid forex market like EURUSD. Say someone buy or sell 500 million - how many pips the price would change ? (Time of deal - American session - most liquid time). Does it matter the speed of execution ?

Any way I would be happy to get any kind of advice on any kind of market not only forex - and any kind of info - theoretical or practical.

I know the simple way to estimate - we need to consider the order book and just calculate the depth which will cover 500 Million. However it seems this method is too naive - since order book is a kind of alive - due to HFT guys new orders appear and disappear. So it may happen that the price changes and then returns to initial value in seconds.

Improve this question
$\endgroup$
  • $\begingroup$ BTW, there is not much published research for market impact in FX, partly because of data availability problems (banks are very guarded with their transaction data). Most of the published work is for equities. So in practical terms it will be difficult to get an exact answer to your question. If you really need a number you will have to find someone with practical experience in trading EURUSD (not me) who will give you a guess. $\endgroup$ – noob2 Jul 29 '15 at 16:59
1
$\begingroup$

This is probably a nice paper you should refer to: Yogo, Koijen (2015) (link). They estimate an asset pricing model which endogenizes the price impact of large trades. It is a quite hard paper to grasp, so probably you do not want to start here, but is still one of the main references.

Improve this answer
$\endgroup$
1
$\begingroup$

To start with the simplest model maybe you could start by googling "Kyle's Lambda" and proceed from there.

Improve this answer
$\endgroup$
  • 1
    $\begingroup$ The paper I posted above is actually an empirical implementation of Kyle's model... $\endgroup$ – phdstudent Jul 29 '15 at 16:29
  • $\begingroup$ sorry, i didn't notice that. thanks for mentioning it. $\endgroup$ – noob2 Jul 29 '15 at 16:38
1
$\begingroup$

You might find something useful here: Is there a standard model for market impact?

And Here's a decent paper about the cost impact on equities: http://www.cims.nyu.edu/~almgren/papers/costestim.pdf

I would have added this as a comment but I don't have enough reputation

Improve this answer
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.