Trading with Concave Price Impact and Impact Decay - Theory and Evidence
30 Pages Posted: 29 Nov 2023
Date Written: November 6, 2023
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
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