Statistical characteristics of price impact in high-frequency trading

Jia Can, Zhou Tianmin and Li Handong ()
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Jia Can: School of Systems Science, Beijing Normal University, No.19, Xinjiekouwai St., Haidian District, Beijing, 100875, China
Zhou Tianmin: School of Systems Science, Beijing Normal University, No.19, Xinjiekouwai St., Haidian District, Beijing, 100875, China
Li Handong: School of Systems Science, Beijing Normal University, No.19, Xinjiekouwai St., Haidian District, Beijing, 100875, China

Studies in Nonlinear Dynamics & Econometrics, 2020, vol. 25, issue 3, 19-34

Abstract: Trading volume changes based on market microstructure will impact asset prices, which will lead to transaction price changes. Based on the extended Hasbrouck–Foster–Viswanathan (HFV) model, we study the statistical characteristics of daily permanent price impact and daily temporary price impact using high-frequency data from Chinese Stock Markets. We estimate this model using tick-by-tick data for 16 selected stocks that are traded on the Shanghai Stock Exchange. We find the following: (1) the time series of both the permanent price impact and temporary price impact exist in stationarity and long-term memory; (2) there is a strong correlation between the permanent price impact among assets, while the correlation coefficient of the temporary price impact is generally weak; (3) the time interval has no significant influence on the trade volume and the price change at the tick frequency, which means that it is not necessary to take into account the time interval between adjacent transaction in high-frequency trading; and (4) the bid-ask spread is an effective factor to explain trading price change, but has no significant impact on trade volume.

Keywords: HFV model; permanent price impact; price change; temporary price impact; trade volume (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1515/snde-2018-0067

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