Market Impact: A Systematic Study of Limit Orders

26 Pages Posted: 18 Jul 2017 Last revised: 3 Oct 2018

See all articles by Emilio Said

Emilio Said

Ecole Centrale Paris - Laboratory of Mathematics Applied to Systems; BNP Paribas

Ahmed Bel Hadj Ayed

BNP Paribas; Ecole Centrale Paris - Laboratory of Mathematics Applied to Systems

Alexandre Husson

Independent

Frederic Abergel

BNP Paribas AM

Date Written: September 5, 2018

Abstract

This paper is devoted to the important yet little explored subject of the market impact of limit orders. Our analysis is based on a proprietary database of metaorders - large orders that are split into smaller pieces before being sent to the market. We first address the case of aggressive limit orders and then, that of passive limit orders. In both cases, we provide empirical evidence of a power law behaviour for the temporary market impact. The relaxation of the price following the end of the metaorder is also studied, and the long-term impact is shown to stabilize at a level of approximately two-thirds of the maximum impact. Finally, a fair pricing condition during the life cycle of the metaorders is empirically validated.

Keywords: Market Microstructure, Statistical Finance, Market Impact, Fair Pricing, Automated Trading, Limit Orders

Suggested Citation

Said, Emilio and Bel Hadj Ayed, Ahmed and Husson, Alexandre and Abergel, Frederic, Market Impact: A Systematic Study of Limit Orders (September 5, 2018). Available at SSRN: https://ssrn.com/abstract=3000949 or http://dx.doi.org/10.2139/ssrn.3000949

Emilio Said (Contact Author)

Ecole Centrale Paris - Laboratory of Mathematics Applied to Systems ( email )

Grande Voie des Vignes
Ch√Ętenay-Malabry CEDEX, 92290
France

BNP Paribas ( email )

Paris
France

Ahmed Bel Hadj Ayed

BNP Paribas ( email )

Paris
France

Ecole Centrale Paris - Laboratory of Mathematics Applied to Systems ( email )

Grande Voie des Vignes
Ch√Ętenay-Malabry, 92290
France

Alexandre Husson

Independent

No Address Available

Frederic Abergel

BNP Paribas AM ( email )

Paris
France

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