1. Describe what market impact costs are.
  2. Why is there market impact in the market?
    1. How does a limit order differ from a market order?
    2. What are the advantages and disadvantages of a limit order?
    1. What are the different approaches to measure market impact?
    2. What is meant by “VWAP” and how is it calculated?
  3. What is implementation shortfall?
  4. What types of explanatory variables are used in models for forecasting market impact?

1 See, for example, Ian Domowitz, Jack Glen, and Ananth Madhavan, “Liquidity, Volatility, and Equity Trading Costs Across Countries and Over Time,” International Finance 4, no. 2 (2001): 221–255 and Donald B. Keim and Ananth Madhavan, “The Costs of Institutional Equity Trades,” Financial Analysts Journal 54, no. 4 (1998): 50–69.

2 Since the buyer buys at the ask and the seller sells at the bid, this definition of market impact cost ignores the bid–ask spread which is an explicit cost.

3 Gang Hu, “Measures of Implicit Trading Costs and Buy-Sell Asymmetry,” Journal of Financial Markets 12, no. 3 (2009): 418–437.

4 Private communication RAS Asset Management.

5 Joel Hasbrouck and Gideon Saar, “Technology and Liquidity Provision: The Blurring of Traditional Definitions,” Journal of Financial Markets 12, no. 2 (2008): 143–172.

6 Note that even if it is possible to view the entire limit order book it does not give a complete picture of the liquidity in the market. This is because hidden and discretionary orders are not included. For a discussion on this ...

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