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Buying impact is often different from selling impact
Often market impact
when buying a line of stock is different than the
market impact
when selling the same amount of the same stock.
This difference can generally be explained by such factors as Momentum,
Upside Risk and Downside Risk.
The EQ Impact Model reflects this directional impact difference, whereas
many less-advanced models ignore this market phenomenon.
In the EQ Impact Model
buy impact is the blue line and
sell impact is the red line.
Cross impact suggests fair-value for crossing stock
Given that buy impact is often different from
sell impact it is reasonable to suggest that
mid-price may not be the fairest price for crossing stock.
The EQ Impact Model contains the
purple cross impact line which is the mid-point between
buy impact and sell impact.
EQ suggests that cross impact
be used to determine the fair-value for crossing stock.
EQ Impact Model specifies expected impact-free volume
The EQ Impact Model determines the unique impact-free volume, if
any, for each security.
The flat portion of the blue buy impact line in the
EQ Impact Model chart represents
the impact-free volume when buying.
Similarly, the flat portion of the red sell impact line represents the impact-free volume when selling.
It is not unusual for impact-free volume to be different when buying than selling,
whilst many securities do not have any impact-free volume.
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