A theory of passive market impact
Fuente:
arXiv
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| Hauptverfasser: | , , |
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| Format: | Preprint |
| Veröffentlicht: |
2024
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| _version_ | 1866909423260139520 |
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| author | Chahdi, Youssef Ouazzani Rosenbaum, Mathieu Szymanski, Grégoire |
| author_facet | Chahdi, Youssef Ouazzani Rosenbaum, Mathieu Szymanski, Grégoire |
| contents | While the market impact of aggressive orders has been extensively studied, the impact of passive orders, those executed through limit orders, remains less understood. The goal of this paper is to investigate passive market impact by developing a microstructure model connecting liquidity dynamics and price moves. A key innovation of our approach is to replace the traditional assumption of constant information content for each trade by a function that depends on the available volume in the limit order book. Within this framework, we explore scaling limits and analyze the market impact of passive metaorders. Additionally, we derive useful approximations for the shape of market impact curves, leading to closed-form formulas that can be easily applied in practice. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2412_07461 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | A theory of passive market impact Chahdi, Youssef Ouazzani Rosenbaum, Mathieu Szymanski, Grégoire Mathematical Finance Probability Trading and Market Microstructure 60G55, 62P05, 91G80 While the market impact of aggressive orders has been extensively studied, the impact of passive orders, those executed through limit orders, remains less understood. The goal of this paper is to investigate passive market impact by developing a microstructure model connecting liquidity dynamics and price moves. A key innovation of our approach is to replace the traditional assumption of constant information content for each trade by a function that depends on the available volume in the limit order book. Within this framework, we explore scaling limits and analyze the market impact of passive metaorders. Additionally, we derive useful approximations for the shape of market impact curves, leading to closed-form formulas that can be easily applied in practice. |
| title | A theory of passive market impact |
| topic | Mathematical Finance Probability Trading and Market Microstructure 60G55, 62P05, 91G80 |
| url | https://arxiv.org/abs/2412.07461 |