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An analysis of price impact functions of individual trades on the London stock exchange

Author

Listed:
  • M. Wilinski
  • Wei Cui
  • A. Brabazon
  • P. Hamill

Abstract

Price impact is an important area of research in market microstructure. Previous studies have examined the relationship between trade size and price impact on a number of equity markets. In this study, using recent order book data from the London Stock Exchange, we examine the immediate price impact function for all stocks from FTSE 100 and novelly we investigate whether the function displays time-of-day effects. The results show that price impact exhibits a power-law scaling that price impact is highest in the first hour of the trading day, and lowest in the 90 minutes before market close.

Suggested Citation

  • M. Wilinski & Wei Cui & A. Brabazon & P. Hamill, 2015. "An analysis of price impact functions of individual trades on the London stock exchange," Quantitative Finance, Taylor & Francis Journals, vol. 15(10), pages 1727-1735, October.
    • Handle: RePEc:taf:quantf:v:15:y:2015:i:10:p:1727-1735
    DOI: 10.1080/14697688.2015.1071077
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    Citations

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    Cited by:

    1. Masaaki Kijima & Christopher Ting, 2019. "Market Price Of Trading Liquidity Risk And Market Depth," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 22(08), pages 1-36, December.
    2. Masaaki Kijima & Christopher Ting, 2019. "Market Price of Trading Liquidity Risk and Market Depth," Papers 1912.04565, arXiv.org.
    3. Ivan Jericevich & Patrick Chang & Tim Gebbie, 2020. "Comparing the market microstructure between two South African exchanges," Papers 2011.04367, arXiv.org.
    4. Harvey, M. & Hendricks, D. & Gebbie, T. & Wilcox, D., 2017. "Deviations in expected price impact for small transaction volumes under fee restructuring," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 471(C), pages 416-426.
    5. Z. Sun & P. A. Hamill & Y. Li & Y. C. Yang & S. A. Vigne, 2019. "Did long-memory of liquidity signal the European sovereign debt crisis?," Annals of Operations Research, Springer, vol. 282(1), pages 355-377, November.
    6. Pham, Manh Cuong & Anderson, Heather Margot & Duong, Huu Nhan & Lajbcygier, Paul, 2020. "The effects of trade size and market depth on immediate price impact in a limit order book market," Journal of Economic Dynamics and Control, Elsevier, vol. 120(C).

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