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Direct Estimation of Equity Market Impact

Summary: Direct Estimation of
Equity Market Impact
Robert Almgren
, Chee Thum
Emmanuel Hauptmann
, and Hong Li
May 10, 2005
The impact of large trades on market prices is a widely discussed
but rarely measured phenomenon, of essential importance to sell-
and buy-side participants. We analyse a large data set from the
Citigroup US equity trading desks, using a simple but realistic the-
oretical framework. We fit the model across a wide range of stocks,
determining the dependence of the coefficients on parameters such
as volatility, average daily volume, and turnover. We reject the com-
mon square-root model for temporary impact as function of trade
rate, in favor of a 3/5 power law across the range of order sizes
considered. Our results can be directly incorporated into optimal
trade scheduling algorithms and pre- and post-trade cost estima-


Source: Almgren, Robert F. - Courant Institute of Mathematical Sciences, New York University
Kearns, Michael - Department of Computer and Information Science, University of Pennsylvania


Collections: Computer Technologies and Information Sciences; Mathematics