Market Impact with Autocorrelated Order Flow under Perfect Competition

Understand

Our goal in this paper is to study the market impact in a market in which the order flow is autocorrelated.

• We build a model which explains qualitatively and quantitatively the empirical facts observed so far concerning market impact.
• We define different notions of market impact, and show how they lead to the different price paths observed in the literature.
• For each one, under the assumption of perfect competition and information, we derive and explain the relationships between the correlations in the order flow, the shape of the market impact function while a meta-order is being executed, and the expected price after the completion.