Market Impact: A systematic study of limit orders

Emilio Said (1, 2) , Ahmed Bel Hadj Ayed (2) , Alexandre Husson (2) , Frederic Abergel (1)

1 MICS - Mathématiques et Informatique pour la Complexité et les Systèmes
2 Global Markets, BNP Paribas, Paris

This paper is devoted to the important yet little explored subject of the market impact of limit orders. Our analysis is based on a proprietary database of metaorders, that is, large orders that are split into smaller pieces. It is divided into two distinct parts: the first addresses the case of aggressive limit orders and the second, that of passive limit orders. For both order types, we confirm a square root temporary impact in the participation rate. In the case of aggressive orders, we also study the price relaxation after the end of the metaorder, and show that the long-term impact reaches a level of approximately two-thirds of the maximum impact. Finally, we propose a functional form for market impact given by σ (Q/V)^0.5, where σ and Q/V respectively stand for the volatility and the participation rate.

Domaines: Microstructure des marchés [q-fin.TR]; Econométrie de la finance [q-fin.ST]

Emilio Said, Ahmed Bel Hadj Ayed, Alexandre Husson, Frederic Abergel. Market Impact: A systematic study of limit orders. 2017. ⟨hal-01561128v1⟩