IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

The Tick-by-Tick Dynamical Consistency of Price Impact in Limit Order Books

  • Damien Challet

Constant price impact functions, much used in financial literature, are shown to give rise to paradoxical outcomes as they do not allow for proper predictability removal: for instance, the exploitation of a single large trade whose size and time of execution are known in advance to some insider leaves the arbitrage opportunity unchanged, which allows arbitrage exploitation multiple times. We argue that chain arbitrage exploitation should not exist, which provides an a contrario consistency criterion. Remarkably, all the stocks investigated in the Paris Stock Exchange have dynamically consistent price impact functions. Both the bid-ask spread and the feedback of sequential same-side market orders onto both sides of the order book are essential to ensure consistency at the smallest time scale.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.tandfonline.com/doi/abs/10.1080/1350486X.2010.504333
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Taylor & Francis Journals in its journal Applied Mathematical Finance.

Volume (Year): 18 (2011)
Issue (Month): 3 ()
Pages: 189-205

as
in new window

Handle: RePEc:taf:apmtfi:v:18:y:2011:i:3:p:189-205
Contact details of provider: Web page: http://www.tandfonline.com/RAMF20

Order Information: Web: http://www.tandfonline.com/pricing/journal/RAMF20

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:taf:apmtfi:v:18:y:2011:i:3:p:189-205. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.