Market Impacts and the Life Cycle of Investors Orders

By Emmanuel Bacry, Adrianna Iuga, Matthieu Lasnier, Charles-Albert Lehalle. Social Science Research Network, 2014

106 citations recorded by the source corpus.

In this paper, we use a database of around 400,000 metaorders issued by investors and electronically traded on European markets in 2010 in order to study market impact at different scales. At the intraday scale we confirm a square root temporary impact in the daily participation, and we shed light on a duration factor in $1/T^{\gamma}$ with $\gamma \simeq 0.25$. Including this factor in the fits reinforces the square root shape of impact. We observe a power-law for the transient impact with an exponent between $0.5$ (for long metaorders) and $0.8$ (for shorter ones). Moreover we show that the market does not anticipate the size of the meta-orders. The intraday decay seems to exhibit two regimes (though hard to identify precisely): a "slow" regime right after the execution of the meta-order followed by a faster one. At the daily time scale, we show price moves after a metaorder can be split between realizations of expected returns that have triggered the investing decision and an idiosynchratic impact that slowly decays to zero. Moreover we propose a class of toy models based on Hawkes processes (the Hawkes Impact Models, HIM) to illustrate our reasoning. We show how the Impulsive-HIM model, despite its simplicity, embeds appealing features like transience and decay of impact. The latter is parametrized by a parameter $C$ having a macroscopic interpretation: the ratio of contrarian reaction (i.e. impact decay) and of the "herding" reaction (i.e. impact amplification).

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/619790ae933706bd743a36a3e639ac9d1b8fce19

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Citations in the corpus

Mean field game of controls and an application to trade crowding (2016, background): “Combining these expected flows with market impact models identified on their own flows (see [Bacry et al., 2015], [Brokmann et al., 2014] or [Waelbroeck and Gomes, 2013] for academics papers on the topic), traders of dealing desks tune their optimal liquidation (or trading) schemes for the coming…”
Optimal execution with non-linear transient market impact (2014, background): “More recently, Bacry et al. (2014) have shown how a market impact model of the form (2.1) may be related to a more fundamental description of order flow using Hawkes processes.”
Beyond the Square Root: Evidence for Logarithmic Dependence of Market Impact on Size and Participation Rate (2014, unknown): “with the same participation rate η and different durations F1 and F2 (F1 < F2), should we expect that the market impact reached at time F1 is the same for the two metaorders? A priori, when the first is at its very end while the second one is still being executed, they should be indistinguishable fr”
Hawkes Processes in Finance (2015, methodology): “This figure has been reproduced from [5].”
Recurrent Marked Temporal Point Processes: Embedding Event History to Vector (2016, background): “In computational finance, temporal point processes are very active research topics in econometrics [2, 3].”