Price Impact Correlation Between Buy-/Sell-Pressure in the Stock Market and Subsequent Price Changes

Sammanfattning: In this thesis, the correlation between aggregated buy-/sell-pressure and price change is analyzed, something often referred to as price impact. The purpose is not only to find a model that can explain how prices change given a certain traded volume, but also to see how much of the variance in price changes results from the actual buy- or sell-pressure. Analysis is conducted on monthly trading data from stocks comprising OMXS30 in 2016. An odd and increasing function of net bought relative to average daily turnover is suggested as an appropriate way to model price impact. In line with previous research thefunction is alsoconcave in order size. An exponentially decaying part dependent on previous trades is then added to the model in order to keep price changes uncorrelated. Further it is analyzed how the dependency on average daily turnover affects price impact, and how the rise of smaller market places might change the sensitivity to price impact at larger ones. Ultimately, it is concluded that the hypothesis stating that a fragmented market increases sensitivity to price impact cannot be rejected.