Market impact and trading profile of hidden orders in stock markets

We empirically study the market impact of trading orders. We are specifically interested in large trading orders that are executed incrementally, which we call hidden orders. These are statistically reconstructed based on information about market member codes using data from the Spanish Stock Market...

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Bibliographic Details
Published in:Physical review. E, Statistical, nonlinear, and soft matter physics Statistical, nonlinear, and soft matter physics, 2009-12, Vol.80 (6 Pt 2), p.066102-066102, Article 066102
Main Authors: Moro, Esteban, Vicente, Javier, Moyano, Luis G, Gerig, Austin, Farmer, J Doyne, Vaglica, Gabriella, Lillo, Fabrizio, Mantegna, Rosario N
Format: Article
Language:English
Subjects:
Algorithms
Financial Management
Humans
Investments
London
Models, Statistical
Reproducibility of Results
Risk-Taking
Spain
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Summary:We empirically study the market impact of trading orders. We are specifically interested in large trading orders that are executed incrementally, which we call hidden orders. These are statistically reconstructed based on information about market member codes using data from the Spanish Stock Market and the London Stock Exchange. We find that market impact is strongly concave, approximately increasing as the square root of order size. Furthermore, as a given order is executed, the impact grows in time according to a power law; after the order is finished, it reverts to a level of about 0.5-0.7 of its value at its peak. We observe that hidden orders are executed at a rate that more or less matches trading in the overall market, except for small deviations at the beginning and end of the order.
ISSN:1539-3755
1550-2376
DOI:10.1103/physreve.80.066102