An analysis of price impact functions of individual trades on the London Stock Exchange

Studying price impact is important in finance and previous work examines the relationship between trade size and price impact on a number of equity markets. In this study, using recent order book data from the London Stock Exchange, we examine the price impact function for six highly-liquid stocks and novelly investigate whether the function displays time-of-day effects. The results show that price impact exhibits a power-law scaling, and that price impact is highest in the first hour of the trading day and lowest in the last ninety minutes of trading.