Trading with Concave Price Impact and Impact Decay - Theory and Evidence

We study statistical arbitrage problems accounting for the nonlinear and transient price impact of metaorders observed empirically. We show that simple explicit trading rules can be derived even for general nonparametric alpha and liquidity signals, and also discuss extensions to several impact decay timescales. These results are illustrated using a proprietary dataset of CFM metaorders, which allows us to calibrate the levels, concavity, and decay parameters of the price impact model and analyze their effects on optimal trading.

Keywords: Nonlinear price impact, optimal trading,

JEL Classification: C51, C61, G11

Suggested Citation: Suggested Citation

Hey, Natascha and Mastromatteo, Iacopo and Muhle-Karbe, Johannes and Webster, Kevin, Trading with Concave Price Impact and Impact Decay - Theory and Evidence (November 6, 2023). Available at SSRN: https://ssrn.com/abstract=4625040 or http://dx.doi.org/10.2139/ssrn.4625040