Price Impact
We define what "Price Impact" means, and how it is measured and modelled in the recent literature. Although this notion seems to convey the idea of a forceful and intuitive mechanism, we discuss why things might not be that simple. Empirical studies show that while the correlation between signed order flow and price changes is strong, the impact of trades on prices is neither linear in volume nor permanent. Impact allows private information to be reflected in prices, but by the same token, random fluctuations in order flow must also contribute to the volatility of markets.
Year of publication: |
2009-03
|
---|---|
Authors: | Bouchaud, J. P. |
Institutions: | arXiv.org ; Capital Fund Management |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Risk Premia: Asymmetric Tail Risks and Excess Returns
Y. Lemp\'eri\`ere, (2014)
-
Two centuries of trend following
Y. Lemp\'eri\`ere, (2014)
-
Financial Applications of Random Matrix Theory: a short review
Bouchaud, J. P., (2009)
- More ...