Arbitrage-Free Price-Update and Price-Impact Functions

Werner Stanzl and Gur Huberman

Yale School of Management Working Papers from Yale School of Management

Abstract: Consider a trading environment where trading volume affects security prices. We show that when the price impact is time stationary, only linear price-impact functions rule out arbitrage. This is true whether a single asset or a portfolio of assets is traded. When the temporary and perm

Date: 2000-12-01, Revised 2001-01-01
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