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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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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Market Impact Estimation: Choice of Parameters and Scaling of Inputs

The standard market-impact model used is the square-root (or more generally speaking, power law) model that states that the temporary impact of a trade is given by: $$ I(V) = \sigma\cdot\alpha \left(\...
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Trades, quotes, and Prices: is high frequency noise scalable by price?

In Section 2.1.3 (page 27) of Trades, Quotes, and Prices by J-P Bouchaud et al., the authors introduce $\eta_t$, an uncorrelated noise term to Bachelier's First Law. In equation (2.13), the authors ...
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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 ...
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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 ...
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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} ...
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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 ...
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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 ...
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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 ...
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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 $Q$ $\...
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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 ...
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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 ...
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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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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 ...
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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 ...
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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. ...
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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 ...
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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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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 ...
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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, ...
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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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