dorsal/arxiv
View SchemaThe tick-by-tick dynamical consistency of price impact in limit order books
| Authors | Damien Challet |
|---|---|
| Categories | |
| ArXiv ID | physics/0702210 |
| URL | https://arxiv.org/abs/physics/0702210 |
| License | http://arxiv.org/licenses/nonexclusive-distrib/1.0/ |
Abstract
Constant price impact functions, much used in financial literature, are shown to give rise to paradoxical outcomes since they do not allow for proper predictability removal: for instance the exploitation of a single large trade whose size and time of execution are known in advance to some insider leaves the arbitrage opportunity unchanged, which allows arbitrage exploitation multiple times. We argue that chain arbitrage exploitation should not exist, which provides an a contrario consistency criterion. Remarkably, all the stocks investigated in Paris Stock Exchange have dynamically consistent price impact functions. Both the bid-ask spread and the feedback of sequential same-side market orders onto both sides of the order book are essential to ensure consistency at the smallest time scale.
{
"annotation_id": "34fb370b-85eb-490f-b620-3d43c91bdd84",
"date_created": "2026-03-02T18:01:17.964000Z",
"date_modified": "2026-03-02T18:01:17.964000Z",
"file_hash": "0ad3e11f59a3a94d794c4fe1eb708d65e406a9062ad7c747ef4bd08adff31a40",
"private": false,
"record": {
"abstract": "Constant price impact functions, much used in financial literature, are shown\nto give rise to paradoxical outcomes since they do not allow for proper\npredictability removal: for instance the exploitation of a single large trade\nwhose size and time of execution are known in advance to some insider leaves\nthe arbitrage opportunity unchanged, which allows arbitrage exploitation\nmultiple times. We argue that chain arbitrage exploitation should not exist,\nwhich provides an a contrario consistency criterion. Remarkably, all the stocks\ninvestigated in Paris Stock Exchange have dynamically consistent price impact\nfunctions. Both the bid-ask spread and the feedback of sequential same-side\nmarket orders onto both sides of the order book are essential to ensure\nconsistency at the smallest time scale.",
"arxiv_id": "physics/0702210",
"authors": [
"Damien Challet"
],
"categories": [
"physics.soc-ph",
"cond-mat.stat-mech",
"q-fin.TR"
],
"license": "http://arxiv.org/licenses/nonexclusive-distrib/1.0/",
"title": "The tick-by-tick dynamical consistency of price impact in limit order books",
"url": "https://arxiv.org/abs/physics/0702210"
},
"schema_id": "dorsal/arxiv",
"source": {
"execution_id": "cfb3dce0-c305-4fc7-971e-c87d25dbe2a1",
"id": "arXiv Dataset IDs",
"type": "Model",
"variant": "snapshot-2026-03-01",
"version": "0.1.0"
},
"user_id": 1000002
}