Impact is not just volatility

11 May 2019

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The notion of market impact is subtle and sometimes misinterpreted. Here we argue that impact should not be misconstrued as volatility. In particular, the so-called “square-root impact law”, which states  that impact grows as the square-root of traded volume, has nothing  to do with price diffusion, i.e. that typical price changes grow as the square-root of time. We rationalise empirical findings on impact and volatility by introducing a simple scaling argument and confronting it to data.

Authors

Michael Benzaquen , Jean-Philippe Bouchaud , Frédéric Bucci , Iacopo Mastromatteo

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