Market Impact: Evidence From the Brazil Stock Market
32 Pages Posted: 28 Mar 2020
Date Written: February 28, 2020
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: Suggested Citation