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How efficiency shapes market impact

Abstract:

We develop a theory for the market impact of large trading orders, which we call metaorders because they are typically split into small pieces and executed incrementally. Market impact is empirically observed to be a concave function of metaorder size, i.e., the impact per share of large metaorders is smaller than that of small metaorders. We formulate a stylized model of an algorithmic execution service and derive a fair pricing condition, which says that the average transaction price of the...

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Publication status:
Published

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Institution:
University of Oxford
Department:
Oxford, MPLS, Mathematical Inst
Waelbroeck, H More by this author
Journal:
QUANTITATIVE FINANCE
Volume:
13
Issue:
11
Pages:
1743-1758
Publication date:
2011-02-26
DOI:
EISSN:
1469-7696
ISSN:
1469-7688
URN:
uuid:5fca58d2-8206-4fce-8df3-532edde6814c
Source identifiers:
387681
Local pid:
pubs:387681
Keywords:

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