Co-Impact: Crowding Effects in Institutional Trading Activity

29 Pages Posted: 10 May 2018

See all articles by Frederic Bucci

Frederic Bucci

Scuola Normale Superiore

Iacopo Mastromatteo

Capital Fund Management

Zoltan Eisler

Capital Fund Management

Fabrizio Lillo

Università di Bologna

Jean-Philippe Bouchaud

Capital Fund Management

Charles‐Albert Lehalle

Capital Fund Management

Date Written: April 25, 2018

Abstract

This paper is devoted to the important yet unexplored subject of crowding effects on market impact, that we call co-impact. Our analysis is based on a large database of metaorders by institutional investors in the U.S. equity market. We find that the market chiefly reacts to the net order flow of ongoing metaorders, without individually distinguishing them. The joint co-impact of multiple contemporaneous metaorders depends on the total number of metaorders and their mutual sign correlation. Using a simple heuristic model calibrated on data, we reproduce very well the different regimes of the empirical market impact curves as a function of volume fraction Φ: square-root for large Φ, linear for intermediate Φ, and a finite intercept I_0 when Φ to 0. The value of I_0 grows with the sign correlation coefficient. Our study sheds light on an apparent paradox: How can a non-linear impact law survive in the presence of a large number of simultaneously executed metaorders?

Suggested Citation

Bucci, Frederic and Mastromatteo, Iacopo and Eisler, Zoltan and Lillo, Fabrizio and Bouchaud, Jean-Philippe and Lehalle, Charles‐Albert, Co-Impact: Crowding Effects in Institutional Trading Activity (April 25, 2018). Available at SSRN: https://ssrn.com/abstract=3168684 or http://dx.doi.org/10.2139/ssrn.3168684

Frederic Bucci (Contact Author)

Scuola Normale Superiore ( email )

Piazza dei Cavalieri, 7
Pisa, 56126
Italy

Iacopo Mastromatteo

Capital Fund Management ( email )

France

Zoltan Eisler

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Fabrizio Lillo

Università di Bologna ( email )

Via Zamboni, 33
Bologna, 40126
Italy

Jean-Philippe Bouchaud

Capital Fund Management ( email )

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

Charles‐Albert Lehalle

Capital Fund Management

23 rue de l'Université
Paris, 75007
France

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