Grasping asymmetric information in market impacts

Abstract

The price impact for a single trade is estimated by the immediate response on an event time scale, i.e., the immediate change of midpoint prices before and after a trade. We work out the price impacts across a correlated financial market. We quantify the asymmetries of the distributions and of the market structures of cross-impacts, and find that the impacts across the market are asymmetric and non-random. Using spectral statistics and Shannon entropy, we visualize the asymmetric information in price impacts. Also, we introduce an entropy of impacts to estimate the randomness between stocks. We show that the useful information is encoded in the impacts corresponding to small entropy. The stocks with large number of trades are more likely to impact others, while the less traded stocks have higher probability to be impacted by others.

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