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Non-average price impact in order-driven markets

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  • Claudio Bellani
  • Damiano Brigo
  • Mikko Pakkanen
  • Leandro Sanchez-Betancourt

Abstract

We present a measurement of price impact in order-driven markets that does not require averages across executions or scenarios. Given the order book data associated with one single execution of a sell metaorder, we measure its contribution to price decrease during the trade. We do so by modelling the limit order book using state-dependent Hawkes processes, and by defining the price impact profile of the execution as a function of the compensator of a stochastic process in our model. We apply our measurement to a data set from NASDAQ, and we conclude that the clustering of sell child orders has a bigger impact on price than their sizes.

Suggested Citation

  • Claudio Bellani & Damiano Brigo & Mikko Pakkanen & Leandro Sanchez-Betancourt, 2021. "Non-average price impact in order-driven markets," Papers 2110.00771, arXiv.org, revised Jan 2022.
    • Handle: RePEc:arx:papers:2110.00771
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    References listed on IDEAS

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    1. Álvaro Cartea & Ryan Donnelly & Sebastian Jaimungal, 2018. "Enhancing trading strategies with order book signals," Applied Mathematical Finance, Taylor & Francis Journals, vol. 25(1), pages 1-35, January.
    2. Frédéric Bucci & Iacopo Mastromatteo & Michael Benzaquen & Jean-Philippe Bouchaud, 2019. "Impact is not just volatility," Quantitative Finance, Taylor & Francis Journals, vol. 19(11), pages 1763-1766, November.
    3. Fr'ed'eric Bucci & Iacopo Mastromatteo & Michael Benzaquen & Jean-Philippe Bouchaud, 2019. "Impact is not just volatility," Papers 1905.04569, arXiv.org.
    4. Maxime Morariu-Patrichi & Mikko S. Pakkanen, 2017. "Hybrid marked point processes: characterisation, existence and uniqueness," Papers 1707.06970, arXiv.org, revised Oct 2018.
    5. Frédéric Bucci & Iacopo Mastromatteo & Michael Benzaquen & Jean-Philippe Bouchaud, 2019. "Impact is not just volatility," Post-Print hal-02323182, HAL.
    6. Bence Toth & Yves Lemperiere & Cyril Deremble & Joachim de Lataillade & Julien Kockelkoren & Jean-Philippe Bouchaud, 2011. "Anomalous price impact and the critical nature of liquidity in financial markets," Papers 1105.1694, arXiv.org, revised Nov 2011.
    7. Emmanuel Bacry & Jean-Fran�ois Muzy, 2014. "Hawkes model for price and trades high-frequency dynamics," Quantitative Finance, Taylor & Francis Journals, vol. 14(7), pages 1147-1166, July.
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