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Article Dans Une Revue Quantitative Finance Année : 2020

Are trading invariants really invariant? Trading costs matter

Frédéric Bucci
  • Fonction : Auteur
Fabrizio Lillo
  • Fonction : Auteur
Jean-Philippe Bouchaud
Michael Benzaquen

Résumé

We revisit the trading invariance hypothesis recently proposed by Kyle and Obizhaeva [1] by empirically investigating a large dataset of bets, or metaorders, provided by ANcerno. The hypothesis predicts that the quantity I := R/N 3/2 , where R is the exchanged risk (volatility × volume × price) and N is the number of bets, is invariant. We find that the 3/2 scaling between R and N works well and is robust against changes of year, market capitalisation and economic sector. However our analysis clearly shows that I is not invariant. We find a very high correlation R 2 > 0.8 between I and the total trading cost (spread and market impact) of the bet. We propose new invariants defined as a ratio of I and costs and find a large decrease in variance. We show that the small dispersion of the new invariants is mainly driven by (i) the scaling of the spread with the volatility per transaction, (ii) the near invariance of the distribution of metaorder size and of the volume and number fractions of bets across stocks.
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Dates et versions

hal-02323318 , version 1 (21-10-2019)

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  • HAL Id : hal-02323318 , version 1

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Frédéric Bucci, Fabrizio Lillo, Jean-Philippe Bouchaud, Michael Benzaquen. Are trading invariants really invariant? Trading costs matter. Quantitative Finance, 2020. ⟨hal-02323318⟩
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