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Estimating the Price Impact of Market Orders on the Bucharest Stock Exchange

Author

Listed:
  • Mircea BAHNA

    (The Bucharest University of Economic Studies, Finance Department.)

  • Cosmin-Octavian CEPOI

    (The Bucharest University of Economic Studies, Money and Banking Department, CEFIMO.)

  • Bogdan Andrei DUMITRESCU

    (The Bucharest University of Economic Studies, Money and Banking Department, CEFIMO.)

  • Virgil DAMIAN

    (The Bucharest University of Economic Studies, Money and Banking Department, CARFIB)

Abstract

In this paper, we study the price response when high dimension buy or sell market orders for equities with different levels of liquidity are introduced into a limit order book system. Using high frequency data from five blue-chips listed on the Bucharest Stock Exchange, we capture the interactions between these types of orders and prices by the estimated impulse response functions in a VECM framework. The results reveal that the impact is high and persistent in time for the less liquid equities and is smaller when dealing with liquid ones. Thus, the corresponding prices of less liquid stocks can be easily manipulated by a trader willing to buy or sell significant volumes. This is a very common imbalance in the capital markets of the emerging countries and should be adjusted very quickly by the regulators.

Suggested Citation

  • Mircea BAHNA & Cosmin-Octavian CEPOI & Bogdan Andrei DUMITRESCU & Virgil DAMIAN, 2018. "Estimating the Price Impact of Market Orders on the Bucharest Stock Exchange," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 120-133, December.
    • Handle: RePEc:rjr:romjef:v::y:2018:i:4:p:120-133
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    References listed on IDEAS

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    More about this item

    Keywords

    market impact; market orders; limit orders; cointegration;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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