Price Impact and Portfolio Impact

Cvitanic, Jaksa; Malamud, Semyon

doi:10.2139/ssrn.1626809

Price Impact and Portfolio Impact

Swiss Finance Institute Research Paper No. 10-26

80 Pages Posted: 18 Jun 2010

See all articles by Jaksa Cvitanic

Jaksa Cvitanic

California Institute of Technology - Division of the Humanities and Social Sciences

Semyon Malamud

Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Date Written: June 13, 2010

Abstract

We study survival, price impact and portfolio impact in heterogeneous economies. We show that, under the equilibrium risk-neutral measure, long-run price impact is in fact equivalent to survival, whereas longrun portfolio impact is equivalent to survival under an agent-specific, wealth-forward measure. These results allow us to show that price impact and portfolio impact are two independent concepts: a nonsurviving agent with no long-run price impact can have a significant long-run impact on other agents' optimal portfolios.

Keywords: Survival, Price Impact, Equilibrium, Heterogeneous Agents, Optimal Portfolios

JEL Classification: D53, G11, G12

Suggested Citation: Suggested Citation

Cvitanic, Jaksa and Malamud, Semyon, Price Impact and Portfolio Impact (June 13, 2010). Swiss Finance Institute Research Paper No. 10-26. Available at SSRN: https://ssrn.com/abstract=1626809 or http://dx.doi.org/10.2139/ssrn.1626809