Market Impacts and the Life Cycle of Investors Orders

30 Pages Posted: 1 Dec 2014 Last revised: 7 Dec 2014

See all articles by Emmanuel Bacry

Emmanuel Bacry

CMAP CNRS-UMR 7641 and Ecole Polytechnique

Adrian Iuga

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); Université Paris-Est Marne la Vallée (UPEMLV)

Matthieu Lasnier

Kepler Cheuvreux

Charles-Albert Lehalle

Capital Fund Management; CFM-Imperial College Institute of Quantitative Finance

Date Written: December 6, 2014

Abstract

In this paper, we use a database of around 400,000 metaorders issued by investors and electronically traded on European markets in 2010 in order to study market impact at different scales.

At the intraday scale we confirm a square root temporary impact in the daily participation, and we shed light on a duration factor in 1/T at power gamma with gamma close to 0.25. Including this factor in the fits reinforces the square root shape of impact.

We observe a power-law for the transient impact with an exponent between 0.5 (for long metaorders) and 0.8 (for shorter ones). Moreover we show that the market does not anticipate the size of the meta-orders.

The intraday decay seems to exhibit two regimes (though hard to identify precisely): a "slow" regime right after the execution of the meta-order followed by a faster one.

At the daily time scale, we show price moves after a metaorder can be split between realizations of expected returns that have triggered the investing decision and an idiosynchratic impact that slowly decays to zero.

Moreover we propose a class of toy models based on Hawkes processes (the Hawkes Impact Models, HIM) to illustrate our reasoning.

We show how the Impulsive-HIM model, despite its simplicity, embeds appealing features like transience and decay of impact. The latter is parametrized by a parameter C having a macroscopic interpretation: the ratio of contrarian reaction (i.e. impact decay) and of the "herding" reaction (i.e. impact amplification).

Suggested Citation

Bacry, Emmanuel and Iuga, Adrian and Lasnier, Matthieu and Lehalle, Charles-Albert, Market Impacts and the Life Cycle of Investors Orders (December 6, 2014). Available at SSRN: https://ssrn.com/abstract=2532152 or http://dx.doi.org/10.2139/ssrn.2532152

Emmanuel Bacry

CMAP CNRS-UMR 7641 and Ecole Polytechnique ( email )

Route de Saclay
Palaiseau, 91128
France

Adrian Iuga

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Université Paris-Est Marne la Vallée (UPEMLV) ( email )

6-8 Cours du Danube
5, Bd Descartes
Serris, Marne-la-Vallée Cedex 2 77700
France

Matthieu Lasnier

Kepler Cheuvreux ( email )

112 avenue Kléber
Paris, 75116
France

Charles-Albert Lehalle (Contact Author)

Capital Fund Management ( email )

23/25, rue de l'Université
Paris, 75007
France

HOME PAGE: http://https://www.cfm.fr/en/

CFM-Imperial College Institute of Quantitative Finance ( email )

South Kensington Campus
Imperial College
LONDON, SW7 2AZ
United Kingdom

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