 The non-linear market impact of large trades: evidence from buy-side order flowNataliya Bershova and Dmitry Rakhlin Quantitative Finance, 2013, vol. 13, issue 11, 1759-1778 Abstract: We perform an empirical study of a set of large institutional orders executed in the US equity market. Our results validate the hidden order arbitrage theory proposed by Farmer et al . [How efficiency shapes market impact, 2013] of the market impact of large institutional orders. We find that large trades are drawn from a distribution with tail exponent of roughly 3/2 and that market impact approximately increases as the square root of trade duration. We examine price reversion after the completion of a trade, finding that permanent impact is also a square root function of trade duration and that its ratio to the total impact observed at the last fill is roughly 2/3. Additionally, we confirm empirically that the post-trade price reverts to a level consistent with a fair pricing condition of Farmer et al . (2013). We study the relaxation dynamics of market impact and find that impact decay is a multi-regime process, approximated by a power law in the first few minutes after order completion and subsequently by exponential decay. Date: 2013 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:13:y:2013:i:11:p:1759-1778 Ordering information: This journal article can be ordered from DOI: 10.1080/14697688.2013.861076 Access Statistics for this article Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral More articles in Quantitative Finance from Taylor & Francis Journals |
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