Chapter 12: Volume Forecasting Techniques
Introduction
This chapter provides readers with volume techniques for algorithmic trading. This includes methods to forecast monthly average daily volumes (ADVs) and daily volumes. We also provide insight into weekly and intraday volume patterns. The monthly ADV model incorporates previous volume levels, momentum, and market volatility. The daily volume forecasting model is based on an autoregressive moving average (ARMA) time series using a historical median measure combined with a day of week effect adjustment factor.
Market Impact Model
We start with the instantaneous impact formulation:
Then, we calculate market impact in terms of percentage of volume (POV), trade rate (α), and ...
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