A Comparison of the Forecasting Ability of Immediate Price Impact Models

Pham, Manh Cuong; Duong, Huu Nhan; Lajbcygier, Paul

doi:10.2139/ssrn.2515667

Cited by 6 publications

(7 citation statements)

References 19 publications

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“…A uniform price-impact curve suitable for different markets has been investigated, the power-law dependence of the return on the size has been found [39,40]. The empirically estimated exponent ranges from 1 3 to 2 3 [41,42,43,44]. Following the work done in refs.…”

Section: The Modelmentioning

confidence: 98%

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Self-reinforcing feedback loop in financial markets with coupling of market impact and momentum traders

Liu

Chen

et al. 2018

Physica A: Statistical Mechanics and its Applications

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By incorporating market impact and momentum traders into an agent-based model, we investigate the conditions for the occurrence of self-reinforcing feedback loops and the coevolutionary mechanism of prices and strategies. For low market impact, the price fluctuations are originally large. The existence of momentum traders has little impact on the change of price fluctuations but destroys the equilibrium between the trend-following and trendrejecting strategies. The trend-following herd behaviors become dominant. A self-reinforcing feedback loop exists. For high market impact, the existence of momentum traders leads to an increase in price fluctuations. The trend-following strategies of rational individuals are suppressed while the trend-following strategies of momentum traders are promoted. The crowdanticrowd behaviors become dominant. A negative feedback loop exists. A theoretical analysis indicates that, for low market impact, the majority effect is beneficial for the trend-followers to earn more, which in turn promotes the trend-following strategies. For high market impact, the minority effect causes the trend-followers to suffer great losses, which in turn suppresses the Email address: zlxxwj@163.com (Li-Xin Zhong a )

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Section: The Modelmentioning

confidence: 98%

“…The price impact against the transaction size has been investigated in refs. [39,40,41,42,43,44]. A uniform price-impact curve suitable for different markets has been investigated, the power-law dependence of the return on the size has been found [39,40].…”

Section: The Modelmentioning

confidence: 99%

Self-reinforcing feedback loop in financial markets with coupling of market impact and momentum traders

Liu

Chen

et al. 2018

Physica A: Statistical Mechanics and its Applications

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“…To evaluate the predictive accuracy of the CSR-associated component of delay, we compare the performance of a comprehensive restricted model for future returns containing all control variables as shown in Equation (6) (restricted model) against an unrestricted model to which we add the CSRassociated component of delay (unrestricted model). In accordance with Naes et al (2011) andPham, Duong, andLajbcygier (2017), we evaluate forecast performance using two statistics: the Diebold-Mariano (DM) test (Diebold & Mariano, 1995) and the modified Diebold-Mariano (MDM) test (Harvey, Stephen, & Paul, 1998).…”

Section: Out-of-sample Evidencementioning

confidence: 99%

Forecasting price delay and future stock returns: The role of corporate social responsibility

Gong

et al. 2019

Journal of Forecasting

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This paper investigates the role of corporate social responsibility (CSR) performance in forecasting companys' stock prices and future returns. The forecasting analysis identifies a negative association between CSR performance and proxies of price delay. The negative CSR–delay association is weak for state‐owned enterprises (SOEs) because of their politically oriented motivation of CSR activities, but significantly strong for non‐SOEs. Furthermore, we find that forecasting delayed firms is expected to have higher future returns. In particular, the returns premium is most attributable to the CSR component of delay, compared with the non‐CSR component. Taken together, these results suggest that CSR performance plays a positive role in enhancing stock price efficiency, and a potential explanation is that CSR performance can be considered as additional information for equity predictions.

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“…Second, it considers order sizes. Hence, the model is more realistic and significantly enhances its ability for the study of market microstructure theories such as immediate price impacts (Lillo et al 2003;Lim and Coggins 2005;Zhou 2012a, b;Xu et al 2017;Pham et al 2017). The models in Mike and Farmer (2008), Gu and Zhou (2009a) have been applied to understand the mechanisms underlying stylized facts (Gu and Zhou 2009b;Meng et al 2012;Zhou et al 2017).…”

Section: Introductionmentioning

confidence: 99%

An empirical behavioral order-driven model with price limit rules

Xiong

et al. 2021

Financ Innov

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We propose an empirical behavioral order-driven (EBOD) model with price limit rules, which consists of an order placement process and an order cancellation process. All the ingredients of the model are determined based on the empirical microscopic regularities in the order flows of stocks traded on the Shenzhen Stock Exchange. The model can reproduce the main stylized facts in real markets. Computational experiments unveil that asymmetric setting of price limits will cause the stock price to diverge exponentially when the up price limit is higher than the down price limit and to vanish vice versa. We also find that asymmetric price limits have little influence on the correlation structure of the return series and the volatility series, but cause remarkable changes in the average returns and the tail exponents of returns. Our EBOD model provides a suitable computational experiment platform for academics, market participants, and policy makers.

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A Comparison of the Forecasting Ability of Immediate Price Impact Models

Cited by 6 publications

References 19 publications

Self-reinforcing feedback loop in financial markets with coupling of market impact and momentum traders

Self-reinforcing feedback loop in financial markets with coupling of market impact and momentum traders

Forecasting price delay and future stock returns: The role of corporate social responsibility

An empirical behavioral order-driven model with price limit rules

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