IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-03938660.html
   My bibliography  Save this paper

Price impact in equity auctions: zero, then linear

Author

Listed:
  • Mohammed Salek

    (CentraleSupélec, MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec - Université Paris-Saclay)

  • Damien Challet

    (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec - Université Paris-Saclay)

  • Ioane Muni Toke

    (CentraleSupélec, MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec - Université Paris-Saclay)

Abstract

Using high-quality data, we report several statistical regularities of equity auctions in the Paris stock exchange. First, the average order book density is linear around the auction price at the time of auction clearing and has a large peak at the auction price. While the peak is due to slow traders, the order density shape is the result of subtle dynamics. The impact of a new market order or cancellation at the auction time can be decomposed into three parts as a function of the size of the additional order: (1) zero impact, caused by the discrete nature of prices, sometimes up to a surprisingly large additional volume relative to the auction volume (2) linear impact for additional orders up to a large fraction of the auction volume (3) for even larger orders price impact is non-linear, frequently super-linear.

Suggested Citation

  • Mohammed Salek & Damien Challet & Ioane Muni Toke, 2023. "Price impact in equity auctions: zero, then linear," Working Papers hal-03938660, HAL.
  • Handle: RePEc:hal:wpaper:hal-03938660
    Note: View the original document on HAL open archive server: https://hal.science/hal-03938660v2
    as

    Download full text from publisher

    File URL: https://hal.science/hal-03938660v2/document
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Raillon, Franck, 2020. "The growing importance of the closing auction in share trading volumes," Journal of Securities Operations & Custody, Henry Stewart Publications, vol. 12(2), pages 135-152, March.
    2. Fédéric Bucci & Michael Benzaquen & Fabrizio Lillo & Jean-Philippe Bouchaud, 2019. "Crossover from Linear to Square-Root Market Impact," Post-Print hal-02323405, HAL.
    3. J. Donier & J. Bonart & I. Mastromatteo & J.-P. Bouchaud, 2015. "A fully consistent, minimal model for non-linear market impact," Quantitative Finance, Taylor & Francis Journals, vol. 15(7), pages 1109-1121, July.
    4. Jonathan Donier & Julius Bonart & Iacopo Mastromatteo & Jean-Philippe Bouchaud, 2014. "A fully consistent, minimal model for non-linear market impact," Papers 1412.0141, arXiv.org, revised Mar 2015.
    5. Jegadeesh, Narasimhan & Wu, Yanbin, 2022. "Closing auctions: Nasdaq versus NYSE," Journal of Financial Economics, Elsevier, vol. 143(3), pages 1120-1139.
    6. Jean-Philippe Bouchaud & Marc Mezard & Marc Potters, 2002. "Statistical properties of stock order books: empirical results and models," Quantitative Finance, Taylor & Francis Journals, vol. 2(4), pages 251-256.
    7. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    8. M. Derksen & B. Kleijn & R. de Vilder, 2020. "Clearing price distributions in call auctions," Quantitative Finance, Taylor & Francis Journals, vol. 20(9), pages 1475-1493, September.
    9. Damien Challet & Nikita Gourianov, 2018. "Dynamical regularities of US equities opening and closing auctions," Papers 1802.01921, arXiv.org, revised Oct 2018.
    10. Marco Avellaneda & Michael Lipkin, 2003. "A market-induced mechanism for stock pinning," Quantitative Finance, Taylor & Francis Journals, vol. 3(6), pages 417-425.
    11. Jean-Philippe Bouchaud & Marc Mezard & Marc Potters, 2002. "Statistical properties of stock order books: empirical results and models," Science & Finance (CFM) working paper archive 0203511, Science & Finance, Capital Fund Management.
    12. Eric Budish & Peter Cramton & John Shim, 2015. "Editor's Choice The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(4), pages 1547-1621.
    13. Fabrizio Lillo & J. Doyne Farmer & Rosario N. Mantegna, 2003. "Master curve for price-impact function," Nature, Nature, vol. 421(6919), pages 129-130, January.
    14. Lorenzo Dall’amico & Antoine Fosset & Jean-Philippe Bouchaud & Michael Benzaquen, 2019. "How does latent liquidity get revealed in the limit order book?," Post-Print hal-02323373, HAL.
    15. Pagano, Michael S. & Schwartz, Robert A., 2003. "A closing call's impact on market quality at Euronext Paris," Journal of Financial Economics, Elsevier, vol. 68(3), pages 439-484, June.
    16. Damien Challet & Nikita Gourianov, 2018. "Dynamical regularities of US equities opening and closing auctions," Papers 1802.01921, arXiv.org, revised Oct 2018.
    17. Lorenzo Dall’amico & Antoine Fosset & Jean-Philippe Bouchaud & Michael Benzaquen, 2019. "How does latent liquidity get revealed in the limit order book?," Post-Print hal-02283821, HAL.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marcel Nutz & Kevin Webster & Long Zhao, 2023. "Unwinding Stochastic Order Flow: When to Warehouse Trades," Papers 2310.14144, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fr'ed'eric Bucci & Iacopo Mastromatteo & Michael Benzaquen & Jean-Philippe Bouchaud, 2019. "Impact is not just volatility," Papers 1905.04569, arXiv.org.
    2. Frédéric Bucci & Iacopo Mastromatteo & Michael Benzaquen & Jean-Philippe Bouchaud, 2019. "Impact is not just volatility," Post-Print hal-02323182, HAL.
    3. Jean-Philippe Bouchaud, 2021. "The Inelastic Market Hypothesis: A Microstructural Interpretation," Papers 2108.00242, arXiv.org, revised Jan 2022.
    4. Fabrizio Lillo, 2021. "Order flow and price formation," Papers 2105.00521, arXiv.org.
    5. Anirban Chakraborti & Ioane Muni Toke & Marco Patriarca & Frederic Abergel, 2011. "Econophysics review: I. Empirical facts," Quantitative Finance, Taylor & Francis Journals, vol. 11(7), pages 991-1012.
    6. Martin D. Gould & Mason A. Porter & Stacy Williams & Mark McDonald & Daniel J. Fenn & Sam D. Howison, 2010. "Limit Order Books," Papers 1012.0349, arXiv.org, revised Apr 2013.
    7. Gu, Gao-Feng & Ren, Fei & Ni, Xiao-Hui & Chen, Wei & Zhou, Wei-Xing, 2010. "Empirical regularities of opening call auction in Chinese stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(2), pages 278-286.
    8. Yuki Sato & Kiyoshi Kanazawa, 2023. "Exact solution to a generalised Lillo-Mike-Farmer model with heterogeneous order-splitting strategies," Papers 2306.13378, arXiv.org, revised Nov 2023.
    9. Olivier Guéant, 2016. "The Financial Mathematics of Market Liquidity: From Optimal Execution to Market Making," Post-Print hal-01393136, HAL.
    10. Johannes Bleher & Michael Bleher, 2024. "An Algebraic Framework for the Modeling of Limit Order Books," Papers 2406.04969, arXiv.org.
    11. Emilio Said, 2022. "Market Impact: Empirical Evidence, Theory and Practice," Working Papers hal-03668669, HAL.
    12. Christopher J. Cho & Timothy J. Norman & Manuel Nunes, 2023. "PRIME: A Price-Reverting Impact Model of a cryptocurrency Exchange," Papers 2305.07559, arXiv.org.
    13. Marc Jeannin & Giulia Iori & David Samuel, 2008. "Modeling stock pinning," Quantitative Finance, Taylor & Francis Journals, vol. 8(8), pages 823-831.
    14. Ke Xu & Martin D. Gould & Sam D. Howison, 2019. "Multi-Level Order-Flow Imbalance in a Limit Order Book," Papers 1907.06230, arXiv.org, revised Oct 2019.
    15. Matthieu Wyart & Jean-Philippe Bouchaud & Julien Kockelkoren & Marc Potters & Michele Vettorazzo, 2006. "Relation between Bid-Ask Spread, Impact and Volatility in Double Auction Markets," Science & Finance (CFM) working paper archive 500067, Science & Finance, Capital Fund Management.
    16. Anirban Chakraborti & Ioane Muni Toke & Marco Patriarca & Frederic Abergel, 2011. "Econophysics review: II. Agent-based models," Quantitative Finance, Taylor & Francis Journals, vol. 11(7), pages 1013-1041.
    17. Anirban Chakraborti & Ioane Muni Toke & Marco Patriarca & Frédéric Abergel, 2011. "Econophysics review: I. Empirical facts," Post-Print hal-00621058, HAL.
    18. Marvin S. Mueller, 2016. "A stochastic Stefan-type problem under first-order boundary conditions," Papers 1601.03968, arXiv.org, revised Oct 2018.
    19. Emilio Said, 2022. "Market Impact: Empirical Evidence, Theory and Practice," Papers 2205.07385, arXiv.org.
    20. Takumi Sueshige & Kiyoshi Kanazawa & Hideki Takayasu & Misako Takayasu, 2018. "Ecology of trading strategies in a forex market for limit and market orders," PLOS ONE, Public Library of Science, vol. 13(12), pages 1-14, December.

    More about this item

    Keywords

    Equity Auctions; Market Microstructure; Price Impact; Statistical Analysis;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-03938660. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.