Crossover from linear to square-root market impact

14 November 2018

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Using a large database of 8 million institutional trades executed in the U.S. equity market, we establish a clear crossover between a linear market impact regime and a square-root regime as a function  of the volume of the order. Our empirical results are remarkably well explained by a recently proposed dynamical theory of liquidity that makes specific predictions about the scaling function describing this crossover.  Allowing at least two characteristic time scales for the liquidity (“fast” and “slow”) enables one to reach quantitative agreement with the data.

Authors

Jean-Philippe Bouchaud , Frédéric Bucci , Michael Benzaquen , Fabrizio Lillo

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