The Subtle Interplay between Square-root Impact, Order Imbalance & Volatility II: An Artificial Market Generator

Guillaume Maitrier, Gr\'egoire Loeper and Jean-Philippe Bouchaud

Papers from arXiv.org

Abstract: This work extends and complements our previous theoretical paper on the subtle interplay between impact, order flow and volatility. In the present paper, we generate synthetic market data following the specification of that paper and show that the approximations made there are actually justified, which provides quantitative support our conclusion that price volatility can be fully explained by the superposition of correlated metaorders which all impact prices, on average, as a square-root of executed volume. One of the most striking predictions of our model is the structure of the correlation between generalized order flow and returns, which is observed empirically and reproduced using our synthetic market generator. Furthermore, we were able to construct proxy metaorders from our simulated order flow that reproduce the square-root law of market impact, lending further credence to the proposal made in Ref. [2] to measure the impact of real metaorders from tape data (i.e. anonymized trades), which was long thought to be impossible.

Date: 2025-09
New Economics Papers: this item is included in nep-rmg
References: Add references at CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2509.05065 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2509.05065

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().