Market Impact Paradoxes

Igor Skachkov

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arXiv · 1312.3349

Market Impact Paradoxes

Igor Skachkov

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Abstract

The market impact (MI) of Volume Weighted Average Price (VWAP) orders is a convex function of a trading rate, but most empirical estimates of transaction cost are concave functions. How is this possible? We show that isochronic (constant trading time) MI is slightly convex, and isochoric (constant trading volume) MI is concave. We suggest a model that fits all trading regimes and guarantees no-dynamic-arbitrage.

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Igor Skachkov. 2013-12-11. Market Impact Paradoxes. https://arxiv.org/abs/1312.3349

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