Market Impact and Trading Profile of Large Trading Orders in Stock Markets

Posted: 3 Aug 2009

See all articles by Esteban Moro

Esteban Moro

Universidad Carlos III de Madrid; Instituto de Ciencias Matemáticas (ICMAT)

Javier Vicente

Santa Fe Institute

Luis G. Moyano

Universidad Carlos III de Madrid

Austin Gerig

U.S. Securities and Exchange Commission

J. Doyne Farmer

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School; Santa Fe Institute

Gabriella Vaglica

University of Palermo

Fabrizio Lillo

Università di Bologna

Rosario N. Mantegna

University of Palermo

Date Written: August 3, 2009

Abstract

We empirically study the market impact of trading orders. We are specifically interested in large trading orders that are executed incrementally, which we call hidden orders. These are reconstructed based on information about market member codes using data from the Spanish Stock Market and the London Stock Exchange. We find that market impact is strongly concave, approximately increasing as the square root of order size. Furthermore, as a given order is executed, the impact grows in time according to a power-law; after the order is finished, it reverts to a level of about 0.5-0.7 of its value at its peak. We observe that hidden orders are executed at a rate that more or less matches trading in the overall market, except for small deviations at the beginning and end of the order.

Keywords: financial markets, market impact, large trading orders

JEL Classification: G10

Suggested Citation

Moro, Esteban and Vicente, Javier and Moyano, Luis G. and Gerig, Austin and Farmer, J. Doyne and Vaglica, Gabriella and Lillo, Fabrizio and Mantegna, Rosario Nunzio, Market Impact and Trading Profile of Large Trading Orders in Stock Markets (August 3, 2009). Available at SSRN: https://ssrn.com/abstract=1443122

Esteban Moro (Contact Author)

Universidad Carlos III de Madrid ( email )

Avenida de la Universidad 30
Leganés, Madrid 28911
Spain

HOME PAGE: http://markov.uc3m.es

Instituto de Ciencias Matemáticas (ICMAT) ( email )

Madrid
Spain

Javier Vicente

Santa Fe Institute ( email )

1399 Hyde Park Road
Santa Fe, NM 87501
United States

Luis G. Moyano

Universidad Carlos III de Madrid ( email )

Avenida de la Universidad 30
Leganés, Madrid 28911
Spain

Austin Gerig

U.S. Securities and Exchange Commission ( email )

United States Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
United States
202-551-4575 (Phone)

HOME PAGE: http://www.austingerig.com

J. Doyne Farmer

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School ( email )

Eagle House
Walton Well Road
Oxford, OX2 6ED
United Kingdom

HOME PAGE: http://www.inet.ox.ac.uk/people/view/4

Santa Fe Institute ( email )

1399 Hyde Park Road
Santa Fe, NM 87501
United States
505-984-8800 (Phone)
505-982-0565 (Fax)

HOME PAGE: http://www.santafe.edu/~jdf/

Gabriella Vaglica

University of Palermo ( email )

Viale delle Scienza
Palermo, 90128
Italy

Fabrizio Lillo

Università di Bologna ( email )

Via Zamboni, 33
Bologna, 40126
Italy

Rosario Nunzio Mantegna

University of Palermo ( email )

Dipartimento di Fisica e Chimica
Viale delle Scienze, Edificio 18
Palermo, PA I-90128
Italy
+3909123899074 (Phone)
+3909123860815 (Fax)

HOME PAGE: http://www.unipa.it/persone/docenti/m/rosario.mantegna

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