The Short-Term Price Impact of Trades Is Universal

9 Pages Posted: 28 Feb 2017 Last revised: 2 Jan 2018

See all articles by Bence Toth

Bence Toth

Santa Fe Institute

Zoltan Eisler

Capital Fund Management

Jean-Philippe Bouchaud

Capital Fund Management

Date Written: January 2, 2018

Abstract

We analyze a proprietary dataset of trades by a single asset manager, comparing their price impact with that of the trades of the rest of the market. In the context of a linear propagator model we find no significant difference between the two, suggesting that both the magnitude and time dependence of impact are universal in anonymous, electronic markets. This result is important as optimal execution policies often rely on propagators calibrated on anonymous data. We also find evidence that in the wake of a trade the order flow of other market participants first adds further copy-cat trades enhancing price impact on very short time scales. The induced order flow then quickly inverts, thereby contributing to impact decay.

Keywords: financial markets, market microstructure, limit order book, order flow, behavioural economics

JEL Classification: C1, G1

Suggested Citation

Toth, Bence and Eisler, Zoltan and Bouchaud, Jean-Philippe, The Short-Term Price Impact of Trades Is Universal (January 2, 2018). Available at SSRN: https://ssrn.com/abstract=2924029 or http://dx.doi.org/10.2139/ssrn.2924029

Bence Toth (Contact Author)

Santa Fe Institute ( email )

1399 Hyde Park Road
Santa Fe, NM 87501
United States

Zoltan Eisler

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Jean-Philippe Bouchaud

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France
+33 1 49 49 59 20 (Phone)

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