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Quantitative Finance · Glossary

What is Market impact, counterfactual impact?

Also known as: market impact · counterfactual impact

Definition 18.5 Research Craft: Predictors, Backtests, Measurement, Portfolios · Chapter 18 — Order-Book Replay Simulation

The market impact of a strategy is the change its own orders and trades cause in the prices it later trades at. In a replay it is a counterfactual impact: the recorded market did not contain the strategy’s orders, so what it would have done with them can only be modelled.

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