Order book resilience, price manipulation, and the positive portfolio problem

Alexander Schied
Universität Mannheim

The viability of a market impact model is usually considered to be equivalent to the absence
of price manipulation strategies in the sense of Huberman & Stanzl (2004). By analyzing a model
with linear instantaneous, transient, and permanent impact components, we discover a new class of
irregularities, which we call transaction-triggered price manipulation strategies. We prove that price
impact must decay as a convex decreasing function of time to exclude these market irregularities along
with standard price manipulation.

Presentation (PDF File)

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