Determinants of immediate price impacts at the trade level in an emerging order-driven market

Zhou, Wei‐Xing

doi:10.1088/1367-2630/14/2/023055

Cited by 31 publications

(20 citation statements)

References 81 publications

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“…For the same market state, the magnitude is larger before up-limit hits than that before down-limit hits. These observations are reasonable due to the relationship between trade size and immediate price impact [15,16,17,18].…”

Section: Summary Statistics Of Five Financial Quantitiessupporting

confidence: 64%

The cooling-off effect of price limits in the Chinese stock markets

Wan

Wang

Jiang

et al. 2018

Physica A: Statistical Mechanics and its Applications

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The price limit trading rule is one of the most widely adopted measures on restricting stock price volatilities in some stock markets. It is expected to stabilize the stock markets and enhance the efficiency of the market allocations. The existence of the cooling-off effect or the magnet effect, induced by the price limit trading rule, is the main controversy of this policy. In this paper, we investigate the cooling-off effect (opposite to the magnet effect) from two aspects. Firstly, from the viewpoint of dynamics, we study the existence of the cooling-off effect by following the dynamical evolution of some financial variables over a period of time before the stock price hits its limit. Secondly, from the probability perspective, we investigate, with the logit model, the existence of the cooling-off effect through analyzing the high-frequency data of all A-share common stocks traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange from 2000 to 2011 and inspecting the trading period from the opening phase prior to the moment that the stock price hits its limits. A comparison is made of the properties between up-limit hits and down-limit hits, and the possible difference will also be compared between bullish and bearish market state by dividing the whole period into three alternating bullish periods and three bearish periods. We find that the cooling-off effect emerges for both up-limit hits and down-limit hits, and the cooling-off effect of the down-limit hits is stronger than that of the up-limit hits. The difference of the cooling-off effect between bullish period and bearish period is quite modest. Moreover, we examine the sub-optimal orders effect, and infer that the professional individual investors and institutional investors play a positive role in the cooling-off effects. All these findings indicate that the price limit trading rule exerts a positive effect on maintaining the stability of the Chinese stock markets.

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Section: Summary Statistics Of Five Financial Quantitiessupporting

confidence: 64%

The cooling-off effect of price limits in the Chinese stock markets

Wan

Wang

Jiang

et al. 2018

Physica A: Statistical Mechanics and its Applications

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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%

“…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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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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“…We find that, for both warrant and stock, there are more filled trades than partially filled trades, while the average volumes and price impacts of filled trades are much smaller than those of partially filled trades. 26,25 It is reasonable that large orders are comparatively few but can cause larger impacts.…”

Section: Data Descriptionmentioning

confidence: 99%

Immediate price impact of a stock and its warrant: Power-law or logarithmic model?

Jiang

Zhou

2017

Int. J. Mod. Phys. B

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Based on the order flow data of a stock and its warrant, the immediate price impacts of market orders are estimated by two competitive models, the power-law model (PL model) and the logarithmic model (LG model). We find that the PL model is overwhelmingly superior to the LG model, regarding the robustness of the estimated parameters and the accuracy of out-of-sample forecasting. We also find that the price impacts of ask and bid orders are consistent with each other for filled trades, since significant positive correlations are observed between the model parameters of both types of orders. Our findings may provide valuable insights for optimal trade execution.

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Determinants of immediate price impacts at the trade level in an emerging order-driven market

Cited by 31 publications

References 81 publications

The cooling-off effect of price limits in the Chinese stock markets

The cooling-off effect of price limits in the Chinese stock markets

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

Immediate price impact of a stock and its warrant: Power-law or logarithmic model?

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