Estimating Price Impact in Opening Auctions

Summary

This note asks how much order volume is needed to change an opening auction price. It highlights why visible bid and ask quantities alone may not be enough: hidden orders can also affect the auction's clearing price. The response says it is not aware of an established rule of thumb for auction impact comparable to the square-root relationship sometimes used for market impact from metaorders.

Instead, it points to research on liquidity during fixing auctions as a starting point for building an estimate. It also stresses that model quality depends on the data available to fit it. The document does not provide a formula, a worked example, or empirical results, so it leaves the estimation method open. Any model would need to reflect the specific auction rules and the order information actually observable in the market; the note does not claim that continuous-market impact models transfer directly to auctions.

Key ideas

• Visible order-book volume may not reveal all liquidity available in an opening auction.
• The response identifies no established rule of thumb for predicting auction price impact.
• Research on liquidity during fixing auctions is suggested as a possible modeling input.
• The data available for fitting a model is a key constraint.

Tags

# At what volume would you move the price at the opening auction?


# At what volume would you move the price at the opening auction?












At many exchanges the opening price is set using an auction which takes place pre-opening (see here for example). During the auction you are allowed to place orders according to certain rules (you might for example be prevented to cancel any order you have made).

Do you know of any established models or "rule of thumb" for predicting at what order volume you would move the opening price?

If you place an order larger than the current bid/ask volume you would probably move the opening price, but the problem is made harder (I think at least!) since there are also hidden order volumes.

## Answer by lehalle (score 2, accepted)

https://quant.stackexchange.com/a/8308

I am not aware about any rule of thumb on market impact during fixing auctions (nothing comparable with the usual square root rule for meta orders market impact). In Navigating Liquidity 6 - A global menu for optimal trading, there is a study about the liquidity during the fixing auctions, you should start from here.

Another important point is the data you have access to to fit your model.

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.