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Quantitative Finance · Glossary

What is Alpha contamination?

Definition 11.5 Microstructure and Execution · Chapter 11 — The Empirics of Price Impact

Alpha contamination is the part of a measured impact that is the price move the order’s owner expected anyway: orders sent because of a forecast move with the forecast, and their impact looks larger than it is.

The square-root law on 2 000 simulated metaorders: binned mean impact over daily volatility against size over daily volume, with the forecast removed and with 30% of the orders timed by a forecast, and the square-root fits. The slope is the same; the level is not. Data: mx_impact.panel_fits.
Figure 11.3. The square-root law on 2 000 simulated metaorders: binned mean impact over daily volatility against size over daily volume, with the forecast removed and with 30% of the orders timed by a forecast, and the square-root fits. The slope is the same; the level is not. Data: mx_impact.panel_fits.
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