An analysis of price impact function in order-driven markets

Giulia Iori, M.G. Daniels, J. Farmer, L. Gillemot, S. Krishnamurthy and E. Smith

Physica A: Statistical Mechanics and its Applications, 2003, vol. 324, issue 1, 146-151

Abstract: We introduce a microscopic model of double-auction markets based on random order placement. Traders post market or limit orders which are stored in the book of the exchange and executed via a central order matching mechanism. We use dimensional analysis, simulations and analytical approximations to make testable predictions of the price impact function. We find that the price impact function is always concave, in agreement with empirical measurements. We provide an explanation for its concavity based on the properties of order flows.

Keywords: Limit order trading; Liquidity; Price impact function (search for similar items in EconPapers)
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437102018885
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

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:eee:phsmap:v:324:y:2003:i:1:p:146-151

DOI: 10.1016/S0378-4371(02)01888-5

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().