Manuel Naviglio, Giacomo Bormetti, Francesco Campigli, German Rodikov, Fabrizio Lillo
arXiv 28 Jan 2025 · Finance — Trading
arXiv:2501.17096 · PDF · DOI · OpenAlex · Extracted main text
Estimating market impact and transaction costs of large trades (metaorders) is a very important topic in finance. However, using models of price and trade based on public market data provide average price trajectories which are qualitatively different from what is observed during real metaorder executions: the price increases linearly, rather than in a concave way, during the execution and the amount of reversion after its end is very limited. We claim that this is a generic phenomenon due to the fact that even sophisticated statistical models are unable to correctly describe the origin of the autocorrelation of the order flow. We propose a modified Transient Impact Model which provides more realistic trajectories by assuming that only a fraction of the metaorder trading triggers market order flow. Interestingly, in our model there is a critical condition on the kernels of the price and order flow equations in which market impact becomes permanent.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Elomari-Kessab, Salma and Maitrier, Guillaume and Bonart, Julius and… (2024) “Microstructure Modes” –Disentangling the Joint Dynamics of Prices & Order Flow | 1.000 | 8 | 4 | 100% |
| 2 | Cont, Rama and Cucuringu, Mihai and Kochems, Jonathan and Prenzel, F… (2023) Limit Order Book Simulation with Generative Adversarial Networks | 1.000 | 5 | 3 | 100% |
| 3 | Zarinelli, Elia and Treccani, Michele and Farmer, J Doyne and Lillo,… (2015) Beyond the square root: Evidence for logarithmic dependence of market impact on size and participation rate self | 0.941 | 6 | 3 | 83% |
| 4 | Jean-Philippe Bouchaud and Yuval Gefen and Marc Potters and Matthieu… (2003) Fluctuations and Response in Financial Markets: The Subtle Nature of 'Random' Price Changes | 0.928 | 4 | 4 | 100% |
| 5 | Lillo, Fabrizio and Mike, Szabolcs and Farmer, J Doyne (2005) Theory for long memory in supply and demand self | 0.928 | 4 | 4 | 100% |
| 6 | Bouchaud, Jean-Philippe and Farmer, J Doyne and Lillo, Fabrizio (2009) How markets slowly digest changes in supply and demand self | 0.843 | 4 | 3 | 75% |
| 7 | Hasbrouck, Joel (1991) Measuring the information content of stock trades | 0.843 | 3 | 3 | 100% |
| 8 | Tóth, Bence and Lemperiere, Yves and Deremble, Cyril and De Latailla… (2011) Anomalous price impact and the critical nature of liquidity in financial markets | 0.737 | 3 | 3 | 67% |
| 9 | Bacry, Emmanuel and Iuga, Adrian and Lasnier, Matthieu and Lehalle,… (2015) Market impacts and the life cycle of investors orders | 0.737 | 3 | 2 | 100% |
| 10 | Brokmann, Xavier and Serie, Emmanuel and Kockelkoren, Julien and Bou… (2015) Slow decay of impact in equity markets | 0.644 | 3 | 2 | 67% |
Showing the top 10 of 27 scored citations.