Market Impact: Empirical Evidence, Theory and Practice

2022/05/15 by E. Gumbira Sa’id, Emilio Said, Said, Emilio · 1 citation
Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #FOS: Economics and business #Financial Markets and Investment Strategies #Mathematical Finance (q-fin.MF) #Stochastic processes and financial applications #Trading and Market Microstructure (q-fin.TR) #q-fin.MF #q-fin.TR

paper · pdf · doi:10.48550/arxiv.2205.07385

arxiv created 2022/05/15 · openalex publication_date 2022/05/15 · arxiv updated 2022/05/17 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28

Abstract

We propose a theory of the market impact of metaorders based on a coarse-grained approach where the microscopic details of supply and demand is replaced by a single parameter ρ∈ [0,+∞] shaping the supply-demand equilibrium and the market impact process during the execution of the metaorder. Our model provides an unified explanation of most of the empirical observations that have been reported and establishes a strong connection between the excess volatility puzzle and the order-driven view of the markets through the square-root law.

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