Market Impact Model Handbook

Oct 2, 1997

Transaction costs are an important determinant of investment results. Investment managers must, accordingly, understand and control the sources of these costs. The Market Impact Model service provides decision support for equity managers and traders. Its most basic function is to forecast transaction costs prior to the transaction. Using this information, managers and traders can analyze alternative strategies and select the most cost-effective approach.

We have sought to convey a broad perspective on our formulation of the modeling problem, analysis, and results. At the same time, the Market Impact Model is the product of an interdisciplinary effort which draws on sometimes highly specialized areas of finance, economics, mathematics, and statistics. We could not reasonably expect the reader to be an expert in all of these areas. In the interest of making this material broadly accessible, we have sought to provide appropriate background, and we have omitted the more technical details.