15 votes

Market impact, why square root?

I found this power point and this paper to be an excellent source on this topic. Here is a quote from the paper: A square-root singularity for small traded volumes is highly non-trivial, and ...
user avatar
6 votes
Accepted

How can we estimate new stock price after a large purchase?

There are a number of price impact models which seek to predict the bias induced on prices by trading. There are also issues with some of these models (which I will mention later). Models Probably the ...
user avatar
  • 2,770
6 votes

How can we estimate new stock price after a large purchase?

Let me try to answer: I have seen how equity trades are executed at the order book level. Let's say the price of the stock is 100 (last traded price). Let's say the order book is as follows: Bids: ...
user avatar
  • 5,201
6 votes

Market impact, why square root?

My understanding (devoid of any mathematical grounding) is as follows. v = Turnover PER UNIT TIME n = Shares you need to execute therefore ...
user avatar
  • 329
4 votes

Is there a standard model for market impact?

In practice all impact models are sub-linear. Despite this is fact (seen in many academic publications, commercial and proprietary models), there is an interesting argument for using a linear impact ...
user avatar
4 votes
Accepted

Papers on temporary price impact

The reference papers for market impact decay are: Waelbroeck, H., and Gomes, C. (2013). Is market impact a measure of the information value of trades? market response to liquidity vs. informed trades....
user avatar
  • 10.6k
4 votes
Accepted

How to measure market depth?

There is no official definition of market depth (this is only a qualitative concept), only the cost of a roundtrip for a given number of shares of contracts. Take $V$ shares, on average, knowing the ...
user avatar
  • 10.6k
3 votes

Market Impact proportional to the bid-ask spread

There are multiple models for price impact and the one you have listed here is not the latest. You can see a writeup of a few of the most popular and recent models in this answer. We can think of a ...
user avatar
  • 2,770
3 votes

How can we estimate new stock price after a large purchase?

I’m by no means an “expert”, though I’ve spent a fair amount of time studying this and writing quant software. There are three important starting places to study this question, in this order: 1 dark ...
user avatar
3 votes

Optimal execution of illiquid securities

Please note that my answer is primarily opinion/experience based. If it is not appropriate I will take it down or edit accordingly. How should I begin to think about optimal execution given a choice ...
user avatar
  • 3,780
2 votes

Matlab Portfolio Optimization with bid ask spread

I can suggest a simple way that is not perfect but is reasonable and not too difficult. Transaction Costs Will Change the Optimal Portfolio What you want to do is account for the transactions costs of ...
user avatar
  • 2,770
2 votes

Is there a standard model for market impact?

The square root law is a quite simple and popular model for price impact estimation: $$\Delta p = Y\sigma\sqrt{\frac{Q}{V}}$$ where: $\Delta p$ is the price impact, $Y$ is a constant (needs to be ...
user avatar
  • 241
2 votes
Accepted

Relation between price changes and trading volume (market impact)

See Kandel and Pearson (1995) and Kim and Verrecchia (1991, 1994, 1997).
user avatar
2 votes

The noise trader explanation of concave market impact

Generally any simple agent-based model where one assumes that one agent is a noise trader, an unsophisticated trader that generally has little predictive power in their trading behaviour, is a "...
user avatar
1 vote

Computing market impact from the order book?

If you have a tick by tick series you can plot cumulative Price*Volume on X axis and prices on Y axis in a XY scatter plot. Then you can derive market impact from the steepness of the resulting line ...
user avatar
  • 11
1 vote

Market impact estimation

The market impact is the influence of the pressure exerted by the flow of metaorders on price dynamics. Metaorders are large orders issued in general by asset managers or investment banks; they are ...
user avatar
  • 10.6k
1 vote

Market impact in stress

I will attempt to elaborate on this from risk management perspective. scenario analysis approach: An example of this is stress testing that Fed mandates for investment banks. Fed gives stress ...
user avatar
  • 223
1 vote

Can someone explain to me the square root law of market impact?

A lot of the literature relies on estimating impacts of large orders (n), typically from major funds, that are split into child orders and executed over some period. Usually this data is proprietary ...
user avatar
  • 19
1 vote

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

IMHO there is a general shift toward algorithmic execution for institutionz over the last 5 to 10 years, and depending on your method of execution the price impact can vary, so I am not certain ...
user avatar
  • 216
1 vote

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

This is a difficult problem, especially since estimating the volatility faces a number of issues: the classic "pollution" of realized variance by bid-ask bounce when using intraday data (cf ...
user avatar
  • 2,770
1 vote

impact model what volatility to use

This is actually a deceptively good question because, as we all know, estimates of variance are extremely sensitive to sampling frequency, sampling intervals, and lags. This is because not all stock ...
user avatar
1 vote

Is there a standard model for market impact?

The easiest way ,i suppose, would be to analyze the market depth. If there is a 20 cent gap between each 100 shares on the bid then to sell 1000 shares instantly would have an impact of $2. Your ...
user avatar
1 vote

Matlab Portfolio Optimization with bid ask spread

Depending on how big is bid-ask spread, it may not matter at all. To start with I'd suggest that for each security you randomly pick either it's bid or ask price, and see whether the optimal weights ...
user avatar
  • 1,484
1 vote

Are e-mini markets manipulated?

We will know the answer to this question when Navinder Singh Sarao is put on trial in the United States on charges of doing precisely this.
user avatar
  • 9,117
1 vote

Are e-mini markets manipulated?

It's like a giant game of tug-of-war except there are many ropes and thousands of participants. The SPY tugs at the ES, which tugs at the SPY, which tugs at other ETFs. I suppose in theory you could ...
user avatar

Only top scored, non community-wiki answers of a minimum length are eligible