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Market Impact Paradoxes

Wilmott Magazine, March 2014, pp 71-78

20 Pages Posted: 27 Jul 2013 Last revised: 2 May 2014

See all articles by Igor Skachkov

Igor Skachkov

Independent

Multiple version iconThere are 2 versions of this paper

Date Written: December 11, 2013

Abstract

The market impact (MI) of Volume Weighted Average Price (VWAP) orders is a convex function of a trading rate, but most empirical estimates of transaction cost are concave functions. How is this possible? We show that isochronic (constant trading time) MI is slightly convex, and isochoric (constant trading volume) MI is concave. We suggest a model that fi ts all trading regimes and guarantees no-dynamic-arbitrage.

Keywords: market impact, dynamic arbitrage, trading engines, Laplace transform

JEL Classification: C13, C21, C44, C61

Suggested Citation

Skachkov, Igor, Market Impact Paradoxes (December 11, 2013). Wilmott Magazine, March 2014, pp 71-78, Available at SSRN: https://ssrn.com/abstract=2298956 or http://dx.doi.org/10.2139/ssrn.2298956

Igor Skachkov (Contact Author)

Independent ( email )

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