Title: Market impact decay and capacity
Authors: Hector Chan - University Paris Dauphine (France) [presenting]
Abstract: Recent studies have documented that market impact decays slowly through time. We study the impact of such slow decay on trading strategies' capacity. To do so, we propose a numerical methodology to estimate capacity. A key benefit of such a procedure is its flexibility in incorporating any specification of market impact. In particular, as traders tend to be more auto-correlated when capital devoted to a trading strategy increases, capacity is sensitive to assumptions on market impact decay. We show that incorporating market impact's slow decay leads to trading strategy capacity that is significantly lower than conveyed in previous capacity studies.