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Master curve for price-impact function

Author

Listed:
  • Fabrizio Lillo

    (Istituto Nazionale per la Fisica della Materia, Università di Palermo)

  • J. Doyne Farmer

    (Santa Fe Institute)

  • Rosario N. Mantegna

    (Istituto Nazionale per la Fisica della Materia, Università di Palermo
    Università di Palermo)

Abstract

The price reaction to a single transaction depends on transaction volume, the identity of the stock, and possibly many other factors. Here we show that, by taking into account the differences in liquidity for stocks of different size classes of market capitalization, we can rescale both the average price shift and the transaction volume to obtain a uniform price-impact curve for all size classes of firm for four different years (1995–98). This single-curve collapse of the price-impact function suggests that fluctuations from the supply-and-demand equilibrium for many financial assets, differing in economic sectors of activity and market capitalization, are governed by the same statistical rule.

Suggested Citation

  • Fabrizio Lillo & J. Doyne Farmer & Rosario N. Mantegna, 2003. "Master curve for price-impact function," Nature, Nature, vol. 421(6919), pages 129-130, January.
    • Handle: RePEc:nat:nature:v:421:y:2003:i:6919:d:10.1038_421129a
    DOI: 10.1038/421129a
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