Equity market impact
The impact of large trades on prices is very important and widely discussed, but rarely measured. Using a large data set from a major bank and a simple but realistic theoretical model, Robert Almgren, Chee Thum, Emmanuel Hauptmann and Hong Li propose that impact is a 3/5 power law of block size, with specific dependence on trade duration, daily volume, volatility and shares outstanding. The results can be directly incorporated into an optimal trade scheduling algorithm and pre- and post-trade cost estimation
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