The Study of Price Impact and Effective Spread
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Date: 09-25-2008
Start Time:
5:30pm
End Time: 7:00pm
Speaker: Anna Obizhaeva
Location: Park Avenue Plaza at 55 East 52nd Street, 11FL
ABSTRACT
The analysis of price impact and effective bid-ask spreads is a challenging task due to various endogeneity issues and data limitations. I described a new methodology for estimating the parameters of trading costs and apply it to a unique data set of portfolio transition trades. I provide the estimates of the price impact and the effective spread in traditional markets as well as in internal and external crossing networks for a period 2001 through 2005 and document a number of new empirical facts about how these estimates differs for various trading venues and how they relate to various stock and trading characteristics. For instance, I find that the price impact increases with the stocks' overall trading volume and with their volatility, whereas the effective spread decreases with these characteristics. The documented increase of the price impact with the trading volume is counterintuitive and not easily explained within the existing market microstructure models. I outline potential explanations that might underly these patterns.
BIO
Anna Obizhaeva is an Assistant Professor at University of Maryland . Her research deals with the theoretical and empirical study of market microstructure, the interaction between security prices and trading strategies, dissemination of information and market liquidity and optimal execution strategies in order-driven markets. Anna holds an undergraduate degree from Moscow State University and a Ph.D. in Finance from MIT Sloan School of Management.
*There will be a cocktail following the event.
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