Estimating Long-Term Price Impact from a Large Stock Purchase

Summary

The document frames a market-impact question: how typical transaction cost models would estimate the long-term price effect of buying shares equal to 1% of a company’s outstanding stock. It converts that quantity into trading volume using an assumption of 100% annual turnover, equating the purchase to 2.5 days of total volume.

The discussion asks how the predicted impact changes if execution proceeds very slowly. It provides no model, calculation, evidence, or estimate of the eventual price effect, so it serves as a prompt for analysis rather than a completed explanation. Its volume comparison depends on the stated turnover assumption, and the document does not specify a stock, execution schedule, or transaction cost model.

Key ideas

• At 100% annual turnover, a purchase of 1% of shares outstanding corresponds to 2.5 days of total volume.
• The question concerns predicted long-term market impact when such a purchase is executed slowly.
• No transaction cost model or impact estimate is supplied.

Tags

# 61260


# What do typical transaction cost models predict about the long-term price impact of buying 1% of a stock’s shares outstanding?












Assuming that the stock has 100% annual turnover, this amounts to buying 2.5 days of total volume. Of course, such a trade will take a long time to execute.

The question is: suppose the trade can be done very slowly. What kind of long-term market impact would be predicted by typical transaction cost models on Wall St?

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.