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Questions tagged [market-impact]

The tag has no usage guidance.

9
votes
2answers
140 views

Permanent or long-term (months) market impact of large trades in stocks / equities

I need an estimate of the "permanent" long-term price impact of large institutional trades. When an investor makes a large trade, there will be a price impact due to the trade. Institutional ...
3
votes
0answers
70 views

How rapidly should estimated volatility and volume change for estimating market impact in small markets?

The cost of market impact is usually modeled as: $$ \Delta{P} = \delta \sigma (\frac{Q}{V})^{1/2} $$ Where: $ \Delta{P} $ is the change in price of the asset caused by the transaction size $Q$ $\...
11
votes
2answers
515 views

Market impact, why square root?

The standard method of market impact is the square-root formula \begin{equation} \Delta P = c \cdot\sigma \cdot \sqrt{\frac{n}{\nu}} \end{equation} where $\Delta P$ is the price change from executing ...
5
votes
0answers
123 views

The noise trader explanation of concave market impact

In "How markets slowly digest changes in supply and demand" by JP Bouchaud, JD Farmer and F Lilo the authors asserts: Noise trader models have been proposed to explain why market impact is a ...
6
votes
1answer
254 views

Optimal execution of illiquid securities

I am using an API to direct orders based on some proprietary buy/sell signal. I am trying to frame a thought process which outlines the slippage/impact risks versus execution risks given the option to ...
5
votes
1answer
2k views

How to measure market depth?

Is there a consensus on a formula for measuring the market depth of a book at a given point in time? Or a possible proxy for this measurement? I see so many articles / people discussing market depth ...
4
votes
1answer
279 views

Relation between price changes and trading volume (market impact)

It is quite a well-know phenomenon that trading volume has an impact on a stock price: the more you buy the higher is a price because of demand increment. I'm wondering about models that can describe ...
4
votes
1answer
183 views

How large are transaction costs in practice?

I am wondering, what kind of transaction costs practitioners (institutional investors) are faced to. Portfolio optimization literature often evaluates portfolio performance after adjusting for a value ...
2
votes
2answers
293 views

Papers on temporary price impact

Can anyone recommend papers that model how long temporary price impact last when you buy / sell a trade? This would fall under the TCA realm (Trade Cost Analysis). Thank you.
2
votes
2answers
137 views

impact model what volatility to use

I am looking at the market impact paper here (http://www.cims.nyu.edu/~almgren/papers/costestim.pdf) and I had a question about volatility on page 11. On page 11 it is stated: "For volatility, we use ...
1
vote
0answers
484 views

Impact / slippage model for open and closing crossing auctions?

The general impact model for trading a VWAP order throughout the day has the form of: $\alpha \cdot \sigma_n \cdot \text{(participation rate)}^\beta$ I'm looking for an impact / slippage model of ...
1
vote
0answers
132 views

What are commercial impact models and transaction cost analysis models out there for simulation?

I have heard that ITG, LiquidMetrix, MarkIT and TradingScreen has good Transaction Cost Analysis (TCA) research. I wonder which firm one would choose to have an impact model formula inside his ...
2
votes
0answers
505 views

What is the market impact of OTC trading ETFs?

I read an interesting statement here: "If an ETF’s market price tracks its NAV well, it is likely to have a small market impact. On the other hand, if the market price is more volatile than the ...
4
votes
4answers
1k views

Do markets typically fall fast, and rise slowly

I'm wondering if there is some measurement or name to this notion, i.e.: Markets typically fall fast, but rise slowly. It seems like this is the case -- get some bad news out of Europe on the debt ...
11
votes
3answers
3k views

What is an effective way of backtesting VWAP execution?

From Optimal Trading Strategies : There are two main reasons why traders execute orders using a VWAP trading strategy. First, a VWAP strategy is the trading strategy that minimizes market ...
8
votes
3answers
382 views

What is the effect of quant finance on global markets?

Attempting to get a high level understanding of the role that quantitative finance plays in the financial global markets. Open to any suggestion on how to do this, but figure a starting point might be ...
11
votes
4answers
1k views

Are e-mini markets manipulated?

Are the prices of e-minis such as S&P 500, Russell 2000, EUROSTOXX, etc. manipulated? That is, are there traders who trade large enough positions to make the price go in the direction they want, ...
23
votes
5answers
9k views

Is there a standard model for market impact?

Is there a standard model for market impact? I am interested in the case of high-volume equities sold in the US, during market hours, but would be interested in any pointers.