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Questions tagged [market-impact]

Market impact (aka price impact) is the bias induced on prices due to market activity like trading. Predictions of the price paid for an order which is large and will affect prices are estimates of market impact.

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Reference for Aggregated Temporary Price Impact

I am wondering if someone knows relevant literature on the joint temporary price impact. The temporary price impact here refers to the difference between the best ask/bid price and transaction price ...
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Is the impact of "small" orders on market dynamics more than is commonly assumed?

When modeling the dynamics of a market, a common assumption is that the impact of a "small" (e.g. very low percentage of daily traded volume) order on current and future observations of the ...
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Market impact power law fitting confusion

In many market impact papers such as "Anomalous price impact and the critical nature of liquidity in financial markets" by Tóth et al (2018), there is a standard power-law relation in the ...
des224's user avatar
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Market Impact: Going from 1/2 power to 3/2

So the standard market impact model (please correct me if I am wrong) says that for an order of size $V_O$ executed from time $0$ to time $T$: $$ S_{T} = S_0\left(\alpha + \beta \sigma\sqrt{\frac{V_O}{...
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Computing market impact from the order book?

Market impact as I understand it measure the difference in price between the first share that is bought and the last share that is bought when an buy order of N shares is submitted to the exchange. (...
Quantified's user avatar
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Market impact estimation [duplicate]

Can anyone provide us with an empirical example (in Python) of market impact visualization, methods of its estimation (in the framework of a parametric model for impact functions) ?
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To what degree is volume correlated with price impact?

There is question from 2017 here but the answer given doesn't really go into any detail. How correlated is volume with price impact? Especially with regard to wash trading; For example, wash trading ...
Dylan Kerler's user avatar
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Market impact in stress

I am trying to model the price impact in stress for a period of several days. Specifically, I am looking for a function/model that predicts the price movement ...
sets's user avatar
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Can someone explain to me the square root law of market impact?

The square root law is shown here: Market impact, why square root? Let's say I want to execute 100 lots. But I have never executed before so I have no idea what n is historically. How would I ...
confused's user avatar
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Market Impact proportional to the bid-ask spread

Empirical studies have shown that market impact can be linked to the following parameters: $$ \mathcal{I}(Q) = \kappa \ . \ \sigma \ . \ (\frac{Q}{V})^\gamma + \alpha \ . \ \psi_{BA} ...
mbz0's user avatar
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Market impact in optimization objective function

Can anyone help to explain why when the square root market impact model is used in the standard mean-variance optimization, the exponent becomes $\frac{5}{3}$ in the objective function? I suspect this ...
user47943's user avatar
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How can we estimate new stock price after a large purchase?

Suppose someone buys $4bn of a particular stock over the period of a few weeks. Depending on how much that stock is being traded, you would expect that the price goes up in a visible way compared to ...
doublefelix's user avatar
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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 ...
JoseOrtiz3's user avatar
4 votes
1 answer
247 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 $Q$ $\...
JoseOrtiz3's user avatar
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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 ...
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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 ...
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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 ...
David Addison's user avatar
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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 ...
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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 ...
Hasek's user avatar
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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 ...
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4 votes
2 answers
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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.
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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 ...
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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 ...
Mark Horvath's user avatar
1 vote
0 answers
169 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 ...
Mark Horvath's user avatar
6 votes
2 answers
632 views

Matlab Portfolio Optimization with bid ask spread

I'm trying to find the optimal portfolio of options and stock which minimizes the standard deviation of the portfolio returns but also taking into consideration the bid and ask prices of the assets. ...
Michael Watters's user avatar
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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 ...
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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 ...
Ray's user avatar
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11 votes
3 answers
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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 ...
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7 votes
3 answers
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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 ...
blunders's user avatar
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11 votes
4 answers
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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, ...
EMP's user avatar
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5 answers
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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.
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