Estimating the Price Impact of Market Orders on the Bucharest Stock Exchange

Mircea Bahna (), Cosmin-Octavian Cepoi (), Bogdan Dumitrescu and Virgil Damian ()
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Mircea Bahna: The Bucharest University of Economic Studies, Finance Department.
Cosmin-Octavian Cepoi: The Bucharest University of Economic Studies, Money and Banking Department, CEFIMO.
Virgil Damian: The Bucharest University of Economic Studies, Money and Banking Department, CARFIB

Journal for Economic Forecasting, 2018, issue 4, 120-133

Abstract: In this paper, we study the price response when high dimension buy or sell market orders for equities with different levels of liquidity are introduced into a limit order book system. Using high frequency data from five blue-chips listed on the Bucharest Stock Exchange, we capture the interactions between these types of orders and prices by the estimated impulse response functions in a VECM framework. The results reveal that the impact is high and persistent in time for the less liquid equities and is smaller when dealing with liquid ones. Thus, the corresponding prices of less liquid stocks can be easily manipulated by a trader willing to buy or sell significant volumes. This is a very common imbalance in the capital markets of the emerging countries and should be adjusted very quickly by the regulators.

Keywords: market impact; market orders; limit orders; cointegration (search for similar items in EconPapers)
JEL-codes: C22 C53 D53 G10 G14 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:rjr:romjef:v::y:2018:i:4:p:120-133

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