Crossover from linear to square-Root market impact

Abstract

Using a large database of 8 million institutional trades executed in the U.S. equity market, we establish a clear crossover between a linear market impact regime and a square-root regime as a function of the volume of the order. Our empirical results are remarkably well explained by a recently proposed dynamical theory of liquidity that makes specific predictions about the scaling function describing this crossover. Allowing at least two characteristic time scales for the liquidity (`fast' and `slow') enables one to reach quantitative agreement with the data.

5 pages, 2 figures

References in corpus (5)

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• Derivation of the Boltzmann Equation for Financial Brownian Motion: Direct Observation of the Collective Motion of High-Frequency Traders
• Universal scaling and nonlinearity of aggregate price impact in financial markets
• Limit order placement as an utility maximization problem and the origin of power law distribution of limit order prices
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Cited by in corpus (5)

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• Liquidity Stress Testing in Asset Management -- Part 1. Modeling the Liability Liquidity Risk