The short-term price impact of trades is universal

By B. Tóth, Zoltán Eisler, Jean-Philippe Bouchaud. 2017

14 citations recorded by the source corpus.

We analyze a proprietary dataset of trades by a single asset manager, comparing their price impact with that of the trades of the rest of the market. In the context of a linear propagator model we find no significant difference between the two, suggesting that both the magnitude and time dependence of impact are universal in anonymous, electronic markets. This result is important as optimal execution policies often rely on propagators calibrated on anonymous data. We also find evidence that in the wake of a trade the order flow of other market participants first adds further copy-cat trades enhancing price impact on very short time scales. The induced order flow then quickly inverts, thereby contributing to impact decay.

Subfields: Condensed Matter Physics, Finance, Management Science and Operations Research

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In Condensed Matter Physics

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In Management Science and Operations Research

Citations in the corpus

Universal features of price formation in financial markets: perspectives from deep learning (2018, background): “Empirical evidence on the universality of certain stylized facts (Cont 2001) and scaling relations (Mandelbrot et al. 1997, Benzaquen et al. 2016, Kyle and Obizhaeva 2016, Patzelt and Bouchaud 2017, Toth et al. 2017, Andersen et al. 2018) seems to support the universality hypothesis.”