Market Impact Paradoxes | Zendy

Skachkov Igor | Zendy

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Market Impact Paradoxes

Author(s) -

Skachkov Igor

Publication year - 2014

Publication title -

wilmott

Language(s) - English

Resource type - Journals

eISSN - 1541-8286

pISSN - 1540-6962

DOI - 10.1002/wilm.10311

Subject(s) - volume weighted average price , isochoric process , algorithmic trading , constant (computer programming) , arbitrage , volume (thermodynamics) , transaction cost , economics , trading strategy , econometrics , monotonic function , financial economics , mathematics , microeconomics , market maker , computer science , stock market , thermodynamics , mathematical analysis , paleontology , physics , horse , biology , programming language

The market impact ( MI ) of volume‐weighted average price (VWAP) orders is a convex function of a trading rate, but most empirical estimates of transaction costs are concave functions. How is this possible? We show that an isochronic (constant trading time) MI is slightly convex, and an isochoric (constant trading volume) MI is concave. We suggest a model that fits all trading regimes and guarantees no dynamic arbitrage.

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