Market Impact: Empirical Evidence, Theory and Practice

Emilio Said ()
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Emilio Said: UdeM - Université de Montréal, ADIA - Abu Dhabi Investment Authority

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Abstract: We propose a theory of the market impact of metaorders based on a coarse-grained approach where the microscopic details of supply and demand is replaced by a single parameter ρ ∈ [0, +∞] shaping the supply-demand equilibrium and the market impact process during the execution of the metaorder. Our model provides an unified explanation of most of the empirical observations that have been reported and establishes a strong connection between the excess volatility puzzle and the order-driven view of the markets through the square-root law.

Keywords: Market microstructure; market impact model; price formation; excess volatility (search for similar items in EconPapers)
Date: 2022-05-15
New Economics Papers: this item is included in nep-mst
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