A comparison of the forecasting ability of immediate price impact models

Pham, Manh Cuong and Duong, Huu Nhan and Lajbcygier, Paul (2017) A comparison of the forecasting ability of immediate price impact models. Journal of Forecasting, 36 (8). pp. 898-918. ISSN 0277-6693

Full text not available from this repository.


As a consequence of recent technological advances and the proliferation of algorithmic and high‐frequency trading, the cost of trading in financial markets has irrevocably changed. One important change, known as price impact, relates to how trading affects prices. Price impact represents the largest cost associated with trading. Forecasting price impact is very important as it can provide estimates of trading profits after costs and also suggest optimal execution strategies. Although several models have recently been developed which may forecast the immediate price impact of individual trades, limited work has been done to compare their relative performance. We provide a comprehensive performance evaluation of these models and test for statistically significant outperformance amongst candidate models using out‐of‐sample forecasts. We find that normalizing price impact by its average value significantly enhances the performance of traditional non‐normalized models as the normalization factor captures some of the dynamics of price impact.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Forecasting
Uncontrolled Keywords:
ID Code:
Deposited By:
Deposited On:
06 Nov 2018 11:08
Last Modified:
22 Nov 2022 06:38