Market Impact: Evidence From the Brazil Stock Market

32 Pages Posted: 28 Mar 2020

See all articles by Alan Genaro

Alan Genaro

Getulio Vargas Foundation (FGV) - Sao Paulo School of Business Administration

Date Written: February 28, 2020

Abstract

Market impact risk is a specific type of liquidity risk. It describes the risk of not being able to execute a trade at the currently quoted price because this trade feeds back in an unfavorable manner on the underlying price. This makes market impact modeling a fascinating and active research agenda from a mathematical point of view. Moreover, market impact models are often used in practical applications and it would be desirable to gain a better understanding of their behavior and their stability. Supported by the international empirical evidence, the continuous-time version of the propagator model, discussed by Gatheral (2010), is applied to Brazil stock market. The main finding, based on the False Discovery Rate (FDR), support the adoption of the square-root law of price impact.

Keywords: Market Impact, Liquidity Risk, Emerging Markets, False Discovery Rate

JEL Classification: G15, G18, C58, C55

Suggested Citation

Genaro, Alan, Market Impact: Evidence From the Brazil Stock Market (February 28, 2020). Available at SSRN: https://ssrn.com/abstract=3548238 or http://dx.doi.org/10.2139/ssrn.3548238

Alan Genaro (Contact Author)

Getulio Vargas Foundation (FGV) - Sao Paulo School of Business Administration ( email )

Sao Paulo
BRAZIL

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