Master curve for price-impact function

Fabrizio Lillo, J. Farmer and Rosario Mantegna
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Fabrizio Lillo: Istituto Nazionale per la Fisica della Materia, Università di Palermo

Nature, 2003, vol. 421, issue 6919, 129-130

Abstract: Abstract The price reaction to a single transaction depends on transaction volume, the identity of the stock, and possibly many other factors. Here we show that, by taking into account the differences in liquidity for stocks of different size classes of market capitalization, we can rescale both the average price shift and the transaction volume to obtain a uniform price-impact curve for all size classes of firm for four different years (1995–98). This single-curve collapse of the price-impact function suggests that fluctuations from the supply-and-demand equilibrium for many financial assets, differing in economic sectors of activity and market capitalization, are governed by the same statistical rule.

Date: 2003
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DOI: 10.1038/421129a

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