Co-impact: Crowding effects in institutional trading activity

Fr\'ed\'eric Bucci, Iacopo Mastromatteo, Zolt\'an Eisler, Fabrizio Lillo, Jean-Philippe Bouchaud and Charles-Albert Lehalle

Papers from arXiv.org

Abstract: This paper is devoted to the important yet unexplored subject of crowding effects on market impact, that we call "co-impact". Our analysis is based on a large database of metaorders by institutional investors in the U.S. equity market. We find that the market chiefly reacts to the net order flow of ongoing metaorders, without individually distinguishing them. The joint co-impact of multiple contemporaneous metaorders depends on the total number of metaorders and their mutual sign correlation. Using a simple heuristic model calibrated on data, we reproduce very well the different regimes of the empirical market impact curves as a function of volume fraction $\phi$: square-root for large $\phi$, linear for intermediate $\phi$, and a finite intercept $I_0$ when $\phi \to 0$. The value of $I_0$ grows with the sign correlation coefficient. Our study sheds light on an apparent paradox: How can a non-linear impact law survive in the presence of a large number of simultaneously executed metaorders?

Date: 2018-04, Revised 2018-07
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://arxiv.org/pdf/1804.09565 Latest version (application/pdf)

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:arx:papers:1804.09565

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().