Price impact in equity auctions: zero, then linear

TL;DR

This paper analyzes the statistical regularities of equity auctions in the Paris stock exchange, revealing linear order book density around the auction price and a nuanced impact of new orders on auction prices.

Contribution

It uncovers the detailed impact of market orders on auction prices, showing zero, linear, and non-linear effects based on order size, with high-quality data analysis.

Findings

Order book density is linear around the auction price.

Impact of new orders is zero, linear, or super-linear depending on size.

Large orders can cause significant non-linear price impacts.

Abstract

Using high-quality data, we report several statistical regularities of equity auctions in the Paris stock exchange. First, the average order book density is linear around the auction price at the time of auction clearing and has a large peak at the auction price. While the peak is due to slow traders, the order density shape is the result of subtle dynamics. The impact of a new market order or cancellation at the auction time can be decomposed into three parts as a function of the size of the additional order: (1) zero impact, caused by the discrete nature of prices, sometimes up to a surprisingly large additional volume relative to the auction volume (2) linear impact for additional orders up to a large fraction of the auction volume (3) for even larger orders price impact is non-linear, frequently super-linear.