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RESEARCH PRODUCT
Market Impact and Trading Profile of Hidden Orders in Stock Markets
Gabriella VaglicaRosario N. MantegnaJavier VicenteEsteban MoroEsteban MoroFabrizio LilloFabrizio LilloAurig GerigAurig GerigDoyne James FarmerDoyne James FarmerLuis G. Moyanosubject
Financial ManagementFluids & PlasmasFinancial markets econophysics hidden orderscomputer.software_genre01 natural sciencesRisk-TakingStock exchangeLondon0502 economics and business0103 physical sciencesEconometricsEconomicsHumansInvestmentsAlgorithmic trading010306 general physicsStock (geology)Models Statistical050208 financeEconophysics05 social sciencesFinancial marketReproducibility of ResultsFlash tradingSpain8. Economic growthStock marketMarket impactcomputerAlgorithmsdescription
We empirically study the market impact of trading orders. We are specifically interested in large trading orders that are executed incrementally, which we call hidden orders. These are statistically reconstructed based on information about market member codes using data from the Spanish Stock Market and the London Stock Exchange. We find that market impact is strongly concave, approximately increasing as the square root of order size. Furthermore, as a given order is executed, the impact grows in time according to a power law; after the order is finished, it reverts to a level of about 0.5-0.7 of its value at its peak. We observe that hidden orders are executed at a rate that more or less matches trading in the overall market, except for small deviations at the beginning and end of the order.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2009-12-01 |