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SUMMARY:A unified theory of order flow\, market impact\, and volatility
DTSTART:20261208T121500
DTEND:20261208T131500
DTSTAMP:20261109T180219Z
UID:a862a9e3ccb28dd4bb1f4a970c98adc6efeb4c8b3d09fbda01026440
CATEGORIES:Conferences - Seminars
DESCRIPTION:Johannes Muhle-Karbe - Imperial College London\nWe propose a m
 icrostructural model for the order flow in financial markets that distingu
 ishes between core orders and reaction flow\, both modelled as Hawkes proc
 esses. This model has a natural scaling limit that reconciles a number of 
 salient empirical properties: persistent signed order flow\, rough trading
  volume and volatility\, and power-law market impact. In our framework\, a
 ll these quantities are pinned down by a single statistic H\, which measur
 es the persistence of the core flow. Specifically\, the signed flow conver
 ges to the sum of a fractional process with Hurst index H and a martingal
 e\, while the limiting traded volume is a rough process with Hurst index H
  - 1/2. No-arbitrage constraints imply that volatility is rough\, with Hu
 rst parameter 2H - 3/2\, and that the price impact of trades follows a po
 wer law with exponent 2 - 2H. The analysis of signed order flow data yield
 s an estimate H around 3/4. This is not only consistent with the square-r
 oot law of market impact\, but also turns out to match estimates for the r
 oughness of traded volumes and volatilities remarkably well.\n\nJoint work
  with Youssef Ouazzani Chahdi\, Mathieu Rosenbaum and Gregoire Szymanski.\
 n 
LOCATION:UNIL\, Extranef\, room 126 https://papers.ssrn.com/sol3/papers.cf
 m?abstract_id=6155066
STATUS:CONFIRMED
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