Market impacts and the life cycle of investors orders

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Title: Market impacts and the life cycle of investors orders
Authors: Bacry, E
Iuga, A
Lasnier, M
Lehalle, C-A
Item Type: Working Paper
Abstract: In this paper, we use a database of around 400,000 metaorders issued by investors and electronically traded on European markets in 2010 in order to study market impact at different scales. At the intraday scale we confirm a square root temporary impact in the daily participation, and we shed light on a duration factor in $1/T^{gamma}$ with $gamma simeq 0.25$. Including this factor in the fits reinforces the square root shape of impact. We observe a power-law for the transient impact with an exponent between $0.5$ (for long metaorders) and $0.8$ (for shorter ones). Moreover we show that the market does not anticipate the size of the meta-orders. The intraday decay seems to exhibit two regimes (though hard to identify precisely): a slow regime right after the execution of the meta-order followed by a faster one. At the daily time scale, we show price moves after a metaorder can be split between realizations of expected returns that have triggered the investing decision and an idiosynchratic impact that slowly decays to zero. Moreover we propose a class of toy models based on Hawkes processes (the Hawkes Impact Models, HIM) to illustrate our reasoning. We show how the Impulsive-HIM model, despite its simplicity, embeds appealing features like transience and decay of impact. The latter is parametrized by a parameter $C$ having a macroscopic interpretation: the ratio of contrarian reaction (i.e. impact decay) and of the herding reaction (i.e. impact amplification).
Issue Date: 9-Dec-2014
Copyright Statement: © The Author(s) 2014
Keywords: q-fin.TR
Notes: 30 pages, 12 figures
Appears in Collections:Financial Mathematics
Faculty of Natural Sciences

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