Market Depth and Order Size - An Analysis of Permanent Price Effects of DAX Futures' Trades

Kempf, Alexander ; Korn, Olaf

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URN: urn:nbn:de:bsz:180-madoc-6789
Document Type: Working paper
Year of publication: 1998
The title of a journal, publication series: Discussion Paper / ZEW
Volume: 98-10
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Subject headings (SWD): Deutschland , Preiselastizität , Preisflexibilität
Abstract: In this paper we empirically analyze the permanent price impact of trades by investigating the relation between unexpected net order flow and price changes. We use intraday data on German index futures. Our analysis based on a neural network model suggests that the assumption of a linear impact of orders on prices (which is often used in theoretical papers) is highly questionable. Therefore, empirical studies, comparing the depth of different markets, should be based on the whole price impact function instead of a simple ratio. To allow the market depth to depend on trade volume could open promising avenues for further theoretical research. This could lead to quite different trading strategies as in traditional models.
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Dieser Eintrag ist Teil der Universitätsbibliographie.

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