Download or read book Trade Duration Volatility and Market Impact written by Francesco Capponi and published by . This book was released on 2019 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: We perform an empirical investigation of 'market impact' of trades using a large dataset of transactions executed by institutional investors in the US equity market. We find that price variations during trade execution are mainly driven by the aggregate order flow imbalance rather than the direction or size of individual trades. We find the main determinants of the amplitude of these price variations to be market volatility and trade duration. By contrast, trade size and execution speed, as measured by the participation rate, are found to have little or no influence on 'market impact' for orderly trade executions.Conditional on trade duration, trade size is found to have little influence on price variations during execution. We find evidence for a square-root dependence of price changes on duration rather than trade size and propose a simple explanation for this dependence in terms of the well-known square-root scaling of volatility as a function of duration. Our explanation is consistent with previous empirical studies on market impact and provides a simple rationale for the ubiquity of the 'square-root law' in these studies. We also examine the role of the participation rate in determining 'market impact': using evidence from large VWAP trades with high participation rates, we show that, conditional on duration, even large changes in participation rate have negligible influence on market impact, contradicting the assumption, common in optimal execution models, that impact increases with the participation rate. In fact, we provide evidence for the opposite effect: for a given trade size, the slower the execution, the higher the amplitude of price variations during the trade. Our findings highlight the need to revisit some common models of market impact and their use in the design of optimal execution, and suggest that it is more meaningful to focus on the modelling of aggregate order flow dynamics and the management of portfolio volatility during execution rather than the optimisation of 'impact' at a trade-by-trade level.
Download or read book Duration Volume and Volatility Impact of Trades written by Simone Manganelli and published by . This book was released on 2005 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a new econometric framework to model duration, volume and volatility simultaneously. We obtain an econometric reduced form that incorporates causal and feedback effects among these variables. We construct impulse-response functions that show how the system reacts to a perturbation of its long-run equilibrium. The methodology is applied to two groups of stocks from NYSE, classified according to their trade intensity. We document how the two groups of stocks are characterised by different dynamics: 1) volume is more persistent for frequently traded stocks than for the infrequently traded ones; 2) the well-known positive relationship between volume and price variability holds only for the frequently traded stocks at the ultra high frequency level; 3) the trade arrival process can be considered exogenous only for the not frequently traded stocks; 4) the more frequently traded the stock, the faster the market returns to its full information equilibrium after a perturbation.
Download or read book Modeling Market Impact and Timing Risk in Volume Time written by Slava Mazur and published by . This book was released on 2013 with total page 15 pages. Available in PDF, EPUB and Kindle. Book excerpt: Intraday volatility and market impact models in volume time are proposed. We build an intraday volatility profile to capture non-stationarity of intraday price returns and utilize a fractional Brownian motion process to measure deviations from square root scaling rule of volatility.We propose a generalized, scalable market impact model that encompasses two mainstream approaches: an aggregated impact of a series of trades on a sufficiently long trading horizon and a transient impact of individual trades.We give an intuitive interpretation of the model parameters and provide a generalized formulation of the optimal trading horizon and efficient trading frontier.The self-similarity feature of an aggregated model allows for its application to smaller trading horizons and modeling of transient impact of sliced orders. We formulate conditions when the impact of sliced orders can be consistently aggregated to the total impact of the original order and deduce relationships between parameters of macro and micro level models to enforce such consistency.We demonstrate that the parameters of aggregated and transient impact models are intimately related to the auto-covariance function of trade signs. We give an explicit formulation of such a relationship when the stated auto-covariance function has a power law form.Enhanced content available, see PDF for details.
Download or read book Trades Quotes and Prices written by Jean-Philippe Bouchaud and published by Cambridge University Press. This book was released on 2018-03-22 with total page 464 pages. Available in PDF, EPUB and Kindle. Book excerpt: The widespread availability of high-quality, high-frequency data has revolutionised the study of financial markets. By describing not only asset prices, but also market participants' actions and interactions, this wealth of information offers a new window into the inner workings of the financial ecosystem. In this original text, the authors discuss empirical facts of financial markets and introduce a wide range of models, from the micro-scale mechanics of individual order arrivals to the emergent, macro-scale issues of market stability. Throughout this journey, data is king. All discussions are firmly rooted in the empirical behaviour of real stocks, and all models are calibrated and evaluated using recent data from Nasdaq. By confronting theory with empirical facts, this book for practitioners, researchers and advanced students provides a fresh, new, and often surprising perspective on topics as diverse as optimal trading, price impact, the fragile nature of liquidity, and even the reasons why people trade at all.
Download or read book Handbook on Systemic Risk written by Jean-Pierre Fouque and published by Cambridge University Press. This book was released on 2013-05-23 with total page 993 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Handbook on Systemic Risk, written by experts in the field, provides researchers with an introduction to the multifaceted aspects of systemic risks facing the global financial markets. The Handbook explores the multidisciplinary approaches to analyzing this risk, the data requirements for further research, and the recommendations being made to avert financial crisis. The Handbook is designed to encourage new researchers to investigate a topic with immense societal implications as well as to provide, for those already actively involved within their own academic discipline, an introduction to the research being undertaken in other disciplines. Each chapter in the Handbook will provide researchers with a superior introduction to the field and with references to more advanced research articles. It is the hope of the editors that this Handbook will stimulate greater interdisciplinary academic research on the critically important topic of systemic risk in the global financial markets.
Download or read book Handbook of Financial Markets Dynamics and Evolution written by Thorsten Hens and published by Elsevier. This book was released on 2009-06-12 with total page 607 pages. Available in PDF, EPUB and Kindle. Book excerpt: The models of portfolio selection and asset price dynamics in this volume seek to explain the market dynamics of asset prices. Presenting a range of analytical, empirical, and numerical techniques as well as several different modeling approaches, the authors depict the state of debate on the market selection hypothesis. By explicitly assuming the heterogeneity of investors, they present models that are descriptive and normative as well, making the volume useful for both finance theorists and financial practitioners. Explains the market dynamics of asset prices, offering insights about asset management approaches Assumes a heterogeneity of investors that yields descriptive and normative models of portfolio selections and asset pricing dynamics
Download or read book The Benefits of Resiliency to Standard Market Impact Models written by Paul Besson and published by . This book was released on 2017 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: We leverage our client order database over the period October 2014-October 2016 (349,442 trades corresponding to a EUR92.3bn turnover) to estimate new models of market impact. We find a multiplicative relationship between the market impact and the explanatory factors (the volatility, the participation rate and the trading duration). Furthermore, the relationship between the participation rate and the duration on one side and the market impact on the other is concave. We introduce a new indicator of resiliency, which measures the ability of the order book to resist the aggressive order flow in a given period. Thus indicator shows a positive correlation with the residuals of our standard model of market impact, clearly demonstrating that the more resilient the stock the more resistant it is to market impact. Thus we are able to calibrate an enhanced model of market impact using our indicator of resiliency, which improves the explanatory power of the model compared to standard approaches. Our resiliency indicator thereby exposes the relationship between the market impact at the meta-order scale and the market impact at the elementary trade scale.
Download or read book Liquidity Markets and Trading in Action written by Deniz Ozenbas and published by Springer Nature. This book was released on 2022 with total page 111 pages. Available in PDF, EPUB and Kindle. Book excerpt: This open access book addresses four standard business school subjects: microeconomics, macroeconomics, finance and information systems as they relate to trading, liquidity, and market structure. It provides a detailed examination of the impact of trading costs and other impediments of trading that the authors call rictions It also presents an interactive simulation model of equity market trading, TraderEx, that enables students to implement trading decisions in different market scenarios and structures. Addressing these topics shines a bright light on how a real-world financial market operates, and the simulation provides students with an experiential learning opportunity that is informative and fun. Each of the chapters is designed so that it can be used as a stand-alone module in an existing economics, finance, or information science course. Instructor resources such as discussion questions, Powerpoint slides and TraderEx exercises are available online.
Download or read book Rush Hours written by Andrea Fenu and published by . This book was released on 2018 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the influence that trading activity has over volatility at intraday level. The correlation between the waiting times between consecutive trades and the amplitude of price movements has been analyzed, confirming the results found by Engle (2000), and Doufur and Engle (2000), according to which volatility is positively correlated with the frequency of the trades, and so, negatively correlated with the waiting times. However, this study demonstrates that these findings are strongly influenced by the presence of deterministic patterns in both waiting times and volatility. In fact, both time series are highly non-stationary and autocorrelated. In order to analyze an unbiased correlation between the two quantities, a detrending procedure with different orders of the polynomial has been used. The results show that, with an appropriate detrending order, the correlation between trading activity and volatility is reduced during the central part of the day, while completely disappearing at the beginning and at the end of the trading session. The explanation may lie in the activity of informed vs uninformed traders. As Admati and Pfleiderer (1988) pointed out, in the central part of the day the liquidity traders are staying away leaving a high proportion of informed traders, which may translate in a direct information impact from the trades to the price formation process. On the other side, the higher activity of noise traders in the first and in the last 20 minutes of the trading session may destroy the relationship between transactions' frequency and price movements.
Download or read book Market Volatility and Investor Confidence written by New York Stock Exchange. Market Volatility and Investor Confidence Panel and published by . This book was released on 1990 with total page 396 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Optimal Trading Strategies written by Robert Kissell and published by Amacom Books. This book was released on 2003 with total page 382 pages. Available in PDF, EPUB and Kindle. Book excerpt: "The decisions that investment professionals and fund managers make have a direct impact on investor return. Unfortunately, the best implementation methodologies are not widely disseminated throughout the professional community, compromising the best interests of funds, their managers, and ultimately the individual investor. But now there is a strategy that lets professionals make better decisions. This valuable reference answers crucial questions such as: * How do I compare strategies? * Should I trade aggressively or passively? * How do I estimate trading costs, ""slice"" an order, and measure performance? and dozens more. Optimal Trading Strategies is the first book to give professionals the methodology and framework they need to make educated implementation decisions based on the objectives and goals of the funds they manage and the clients they serve."
Download or read book Individual Investors and Volatility written by Thierry Foucault and published by . This book was released on 2013 with total page 75 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that retail trading activity has a positive effect on the volatility of stock returns. To identify this effect, we use a reform of the French stock market that triggers a drop in retail trading activity by raising the relative cost of speculative trading for retail investors. The daily return volatility of the stocks affected by the reform falls by twenty basis points (a quarter of the sample standard deviation of the return volatility) relative to other stocks. For affected stocks, we also find a significant decrease in the magnitude of return reversals and the price impact of trades. We argue that these findings are consistent with the view that some retail investors behave as noise traders.
Download or read book Econophysics of Order driven Markets written by Frédéric Abergel and published by Springer Science & Business Media. This book was released on 2011-04-06 with total page 316 pages. Available in PDF, EPUB and Kindle. Book excerpt: The primary goal of the book is to present the ideas and research findings of active researchers from various communities (physicists, economists, mathematicians, financial engineers) working in the field of "Econophysics", who have undertaken the task of modelling and analyzing order-driven markets. Of primary interest in these studies are the mechanisms leading to the statistical regularities ("stylized facts") of price statistics. Results pertaining to other important issues such as market impact, the profitability of trading strategies, or mathematical models for microstructure effects, are also presented. Several leading researchers in these fields report on their recent work and also review the contemporary literature. Some historical perspectives, comments and debates on recent issues in Econophysics research are also included.
Download or read book Volatility News and Market Impact written by Yihua Nie and published by . This book was released on 2019 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt: "I examine how high-frequency traders (HFTs) adjust their trading behavior based on market conditions, as well as their consequent market impact. I represent HFTs' trading behavior into two main categories of trading styles: market-making, whereby HFTs perform as "liquidity providers" in the Kyle (1985) model, and active-trading, whereby HFTs actively perform as "informed traders" in the Kyle framework. Analyzing HFTs' trading styles led to four novel findings. First, HFTs' market-making activities are negatively affected by both expected and unexpected stock volatility components. Second, during news events, HFTs select their trading styles across different news topics, based on the informativeness level of each topic. Third, due to the immediate active-trading strategies upon news events, HFTs facilitate price discovery only within around 100 seconds after news events. Lastly, the SEC's short-sale ban act in 2008 effectively restricted HFTs' active trading styles, but also excluded HFTs from improving the market price efficiency. Above all, understanding HFTs' market impact from their trading behavior, rather than mere trading speed, is essential to fully understanding their roles in the modern equities markets."--Page v.
Download or read book Volatility Effects of Institutional Trading in Foreign Stocks written by Chiraphol N. Chiyachantana and published by . This book was released on 2013 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the impact of institutional trades on volatility in international stocks across 43 countries. There is a temporary volatility spike during the trade execution period, merely reflecting the price impact costs faced by the institutions. Cross sectional regressions suggest that trade imbalances, enforcement of insider trading laws, stock prices, and an emerging market classification are positively associated with temporary volatility increases whereas the presence of market makers and better shareholders' rights dampen such increases. In the long term, institutional trades do not destabilize markets as the levels of volatility after their trades are almost identical to their pre-decision levels.
Download or read book Portfolio Construction and Risk Budgeting written by and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Volatility Trading website written by Euan Sinclair and published by John Wiley & Sons. This book was released on 2008-06-23 with total page 228 pages. Available in PDF, EPUB and Kindle. Book excerpt: In Volatility Trading, Sinclair offers you a quantitative model for measuring volatility in order to gain an edge in your everyday option trading endeavors. With an accessible, straightforward approach. He guides traders through the basics of option pricing, volatility measurement, hedging, money management, and trade evaluation. In addition, Sinclair explains the often-overlooked psychological aspects of trading, revealing both how behavioral psychology can create market conditions traders can take advantage of-and how it can lead them astray. Psychological biases, he asserts, are probably the drivers behind most sources of edge available to a volatility trader. Your goal, Sinclair explains, must be clearly defined and easily expressed-if you cannot explain it in one sentence, you probably aren't completely clear about what it is. The same applies to your statistical edge. If you do not know exactly what your edge is, you shouldn't trade. He shows how, in addition to the numerical evaluation of a potential trade, you should be able to identify and evaluate the reason why implied volatility is priced where it is, that is, why an edge exists. This means it is also necessary to be on top of recent news stories, sector trends, and behavioral psychology. Finally, Sinclair underscores why trades need to be sized correctly, which means that each trade is evaluated according to its projected return and risk in the overall context of your goals. As the author concludes, while we also need to pay attention to seemingly mundane things like having good execution software, a comfortable office, and getting enough sleep, it is knowledge that is the ultimate source of edge. So, all else being equal, the trader with the greater knowledge will be the more successful. This book, and its companion CD-ROM, will provide that knowledge. The CD-ROM includes spreadsheets designed to help you forecast volatility and evaluate trades together with simulation engines.
