A Simple Microstructural Explanation of Concave Pice Impact

@article{Nadtochiy2020ASM,
  title={A Simple Microstructural Explanation of Concave Pice Impact},
  author={S. Nadtochiy},
  journal={Capital Markets: Market Microstructure eJournal},
  year={2020}
}
  • S. Nadtochiy
  • Published 2020
  • Economics
  • Capital Markets: Market Microstructure eJournal
This article describes a simple model of market microstructure which explains a concave price impact. In the proposed model, the local relationship between the order flow and the fundamental price (i.e. the local price impact) is linear, which makes the model dynamically consistent. Nevertheless, the expected impact on midprice from a large sequence of co-directional trades is nonlinear and asymptotically concave. The main practical conclusion of the model is that, throughout a meta-order, the… Expand

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