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arXiv · 1905.04569

Impact is not just volatility

Frédéric Bucci·Iacopo Mastromatteo·Michael Benzaquen·Jean-Philippe Bouchaud
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Abstract

The notion of market impact is subtle and sometimes misinterpreted. Here we argue that impact should not be misconstrued as volatility. In particular, the so-called ``square-root impact law'', which states that impact grows as the square-root of traded volume, has nothing to do with price diffusion, i.e. that typical price changes grow as the square-root of time. We rationalise empirical findings on impact and volatility by introducing a simple scaling argument and confronting it to data.

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Frédéric Bucci, Iacopo Mastromatteo, Michael Benzaquen, Jean-Philippe Bouchaud. 2019-05-11. Impact is not just volatility. https://arxiv.org/abs/1905.04569

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