Crossover from Linear to Square-Root Market Impact

Fédéric Bucci, Michael Benzaquen (), Fabrizio Lillo and Jean-Philippe Bouchaud ()
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Michael Benzaquen: LadHyX - Laboratoire d'hydrodynamique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique

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Abstract: Using a large database of 8 million institutional trades executed in the U.S. equity market, we establish a clear crossover between a linear market impact regime and a square-root regime as a function of the volume of the order. Our empirical results are remarkably well explained by a recently proposed dynamical theory of liquidity that makes specific predictions about the scaling function describing this crossover. Allowing at least two characteristic timescales for the liquidity ("fast" and "slow") enables one to reach quantitative agreement with the data.

Date: 2019-03
New Economics Papers: this item is included in nep-mst
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Published in Physical Review Letters, 2019, 122 (10), ⟨10.1103/PhysRevLett.122.108302⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02323405

DOI: 10.1103/PhysRevLett.122.108302

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