IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2501.17096.html
   My bibliography  Save this paper

Why is the estimation of metaorder impact with public market data so challenging?

Author

Listed:
  • Manuel Naviglio
  • Giacomo Bormetti
  • Francesco Campigli
  • German Rodikov
  • Fabrizio Lillo

Abstract

Estimating market impact and transaction costs of large trades (metaorders) is a very important topic in finance. However, using models of price and trade based on public market data provide average price trajectories which are qualitatively different from what is observed during real metaorder executions: the price increases linearly, rather than in a concave way, during the execution and the amount of reversion after its end is very limited. We claim that this is a generic phenomenon due to the fact that even sophisticated statistical models are unable to correctly describe the origin of the autocorrelation of the order flow. We propose a modified Transient Impact Model which provides more realistic trajectories by assuming that only a fraction of the metaorder trading triggers market order flow. Interestingly, in our model there is a critical condition on the kernels of the price and order flow equations in which market impact becomes permanent.

Suggested Citation

  • Manuel Naviglio & Giacomo Bormetti & Francesco Campigli & German Rodikov & Fabrizio Lillo, 2025. "Why is the estimation of metaorder impact with public market data so challenging?," Papers 2501.17096, arXiv.org.
    • Handle: RePEc:arx:papers:2501.17096
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2501.17096
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jean-Philippe Bouchaud & Yuval Gefen & Marc Potters & Matthieu Wyart, 2003. "Fluctuations and response in financial markets: the subtle nature of `random' price changes," Papers cond-mat/0307332, arXiv.org, revised Aug 2003.
    2. Hasbrouck, Joel, 1991. "Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, vol. 46(1), pages 179-207, March.
    3. Nataliya Bershova & Dmitry Rakhlin, 2013. "The non-linear market impact of large trades: evidence from buy-side order flow," Quantitative Finance, Taylor & Francis Journals, vol. 13(11), pages 1759-1778, November.
    4. Hasbrouck, Joel, 1991. "The Summary Informativeness of Stock Trades: An Econometric Analysis," The Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 571-595.
    5. J. Doyne Farmer & Austin Gerig & Fabrizio Lillo & Henri Waelbroeck, 2013. "How efficiency shapes market impact," Quantitative Finance, Taylor & Francis Journals, vol. 13(11), pages 1743-1758, November.
    6. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    7. Tóth, Bence & Palit, Imon & Lillo, Fabrizio & Farmer, J. Doyne, 2015. "Why is equity order flow so persistent?," Journal of Economic Dynamics and Control, Elsevier, vol. 51(C), pages 218-239.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Guillaume Maitrier & Gr'egoire Loeper & Jean-Philippe Bouchaud, 2025. "Generating realistic metaorders from public data," Papers 2503.18199, arXiv.org, revised Apr 2025.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. F. Campigli & G. Bormetti & F. Lillo, 2022. "Measuring price impact and information content of trades in a time-varying setting," Papers 2212.12687, arXiv.org, revised Dec 2023.
    2. Fabrizio Lillo, 2021. "Order flow and price formation," Papers 2105.00521, arXiv.org.
    3. Olivier Guéant, 2016. "The Financial Mathematics of Market Liquidity: From Optimal Execution to Market Making," Post-Print hal-01393136, HAL.
    4. Emilio Said, 2022. "Market Impact: Empirical Evidence, Theory and Practice," Working Papers hal-03668669, HAL.
    5. Brunovský, Pavol & Černý, Aleš & Komadel, Ján, 2018. "Optimal trade execution under endogenous pressure to liquidate: Theory and numerical solutions," European Journal of Operational Research, Elsevier, vol. 264(3), pages 1159-1171.
    6. Emilio Said, 2022. "Market Impact: Empirical Evidence, Theory and Practice," Papers 2205.07385, arXiv.org.
    7. Sun, Yuxin & Ibikunle, Gbenga, 2017. "Informed trading and the price impact of block trades: A high frequency trading analysis," International Review of Financial Analysis, Elsevier, vol. 54(C), pages 114-129.
    8. Yue Zhao & Difang Wan, 2018. "Institutional high frequency trading and price discovery: Evidence from an emerging commodity futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(2), pages 243-270, February.
    9. Thibault Jaisson, 2014. "Market impact as anticipation of the order flow imbalance," Papers 1402.1288, arXiv.org.
    10. Chan, Yue-Cheong, 2000. "The price impact of trading on the stock exchange of Hong Kong," Journal of Financial Markets, Elsevier, vol. 3(1), pages 1-16, February.
    11. Pascual, Roberto & Pascual-Fuster, Bartolome & Climent, Francisco, 2006. "Cross-listing, price discovery and the informativeness of the trading process," Journal of Financial Markets, Elsevier, vol. 9(2), pages 144-161, May.
    12. B. Tóth & Z. Eisler & F. Lillo & J. Kockelkoren & J.-P. Bouchaud & J.D. Farmer, 2012. "How does the market react to your order flow?," Quantitative Finance, Taylor & Francis Journals, vol. 12(7), pages 1015-1024, May.
    13. Umut c{C}etin & Henri Waelbroeck, 2020. "Informed trading, limit order book and implementation shortfall: equilibrium and asymptotics," Papers 2003.04425, arXiv.org.
    14. Lamoureux, Christopher G. & Wang, Qin, 2015. "Measuring private information in a specialist market," Journal of Empirical Finance, Elsevier, vol. 30(C), pages 92-119.
    15. Dennis J. Whalen & Charles D. Collver, 2004. "Informed Trading Around Earnings Announcements: Another Look," The Financial Review, Eastern Finance Association, vol. 39(3), pages 409-434, August.
    16. Choi, Jin Hyuk & Larsen, Kasper & Seppi, Duane J., 2019. "Information and trading targets in a dynamic market equilibrium," Journal of Financial Economics, Elsevier, vol. 132(3), pages 22-49.
    17. Van Ness, Bonnie & Van Ness, Robert & Yildiz, Serhat, 2021. "Private information in trades, R2, and large stock price movements," Journal of Banking & Finance, Elsevier, vol. 131(C).
    18. Chakravarty, Sugato, 2001. "Stealth-trading: Which traders' trades move stock prices?," Journal of Financial Economics, Elsevier, vol. 61(2), pages 289-307, August.
    19. Koopman, S.J.M. & Lai, H.N., 1998. "Modelling bid-ask spreads in competitive dealership markets," Other publications TiSEM 7a193911-dbf2-4831-ac8d-9, Tilburg University, School of Economics and Management.
    20. Lei, Qin & Wu, Guojun, 2005. "Time-varying informed and uninformed trading activities," Journal of Financial Markets, Elsevier, vol. 8(2), pages 153-181, May.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2501.17096. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.