In financial markets, market impact is the effect that a market participant has when it buys or sells an asset. It is the extent to which the buying or selling moves the price against the buyer or seller, i.e., upward when buying and downward when selling. It is closely related to market liquidity; in many cases "liquidity" and "market impact" are synonymous.
Especially for large investors, e.g., financial institutions, market impact is a key consideration before any decision to move money within or between financial markets. If the amount of money being moved is large (relative to the turnover of the asset(s) in question), then the market impact can be several percentage points and needs to be assessed alongside other transaction costs (costs of buying and selling).
Download Impact Market App
Download Zip 🔥 https://tiurll.com/2yGAtx 🔥
Market impact can arise because the price needs to move to tempt other investors to buy or sell assets (as counterparties), but also because professional investors may position themselves to profit from knowledge that a large investor (or group of investors) is active one way or the other. Some financial intermediaries have such low transaction costs that they can profit from price movements that are too small to be of relevance to the majority of investors.
The financial institution that is seeking to manage its market impact needs to limit the pace of its activity (e.g., keeping its activity below one-third of daily turnover) so as to avoid disrupting the price.
Market impact cost is a measure of market liquidity that reflects the cost faced by a trader of an index or security.[1] The market impact cost is measured in the chosen numeraire of the market, and is how much additionally a trader must pay over the initial price due to market slippage, i.e. the cost incurred because the transaction itself changed the price of the asset.[2] Market impact costs are a type of transaction costs.
Several statistical measures exist. One of the most common is Kyle's Lambda, estimated as the coefficient {\displaystyle \lambda } from regressing price changes P t {\displaystyle P_{t}} on trade size y t {\displaystyle y_{t}} over some time window.
Microcap (and nanocap) stocks are characterized by a market cap under $300mn ($50mn) relatively limited public float and small daily volume. As a result, these stocks are extremely volatile and susceptible to large price swings. [4]
Suppose an institutional investor places a limit order to sell 1 million shares of stock XYZ at $10.00 per share. A professional investor may see this limit order being placed, and place an order of their own to short sell 1 million shares of XYZ at $9.99 per share.
Effectively, the institutional investor's large order has given an option to the professional investor. Institutional investors don't like this, because either the stock price rises to $9.99 and comes back down, without them having the opportunity to sell, or the stock price rises to $10.00 and keeps going up, meaning the institutional investor could have sold at a higher price.
I'm interested in using impact markets for the Winter 2022 ACX Grants round, which would require turning this sketch of an idea into a concrete proposal. Below I'm listing some of the open questions about details of an impact marketplace, and my preliminary thoughts on each.
A charity offers a single impact certificate representing a project. For example, if they need $1 million to cure malaria in Senegal, they sell a single certificate representing that project for $1 million. Then, when an final oracular funder decides the project is worth $5 million, they give $5 million to the holder of the certificate.
My thoughts: The fractionalized shares with assurance contracts seem clearly the best. Some reviewers noted that in real venture capitalism, VCs are able to talk to each other to coordinate funding without a formal assurance contract. I think our market will involve smaller and less savvy players (at least at first), which would make the contract more useful.
This is also going to make a lot of people mad when some photogenic kid from Kenya sweats and toils to builds a water pump for his community or something, and then some billionaire says no, I built that water pump.
Both the people who do the project (ie the founder who gets people to build the bednet factory, the scientist who discovers the malaria cure) and the people who fund the project deserve some share of credit in the success. In this model, impact markets would distribute the funding-related credit only. That is, I might pay $1 million for the impact of a project to cure malaria; when they succeed, I can sell it to a big foundation for $5 million. So long as I have the shares, I can claim that I funded the project; once the foundation has the shares, they can claim this (even though causally they were not the ones who give the project the funds). In either case, the founders and scientists retain the credit for founding the project and doing the science.
We might (for example) say that in an average project, the actual team involved deserves half the credit, and the funders also deserve half the credit (or some other distribution). Then we might have a norm that the team can sell half the equity (representing the funding credit) but not the other half (representing a sort of inalienable moral credit that attaches to their hard work).
This has the following problem: suppose that you are an investor who believes that the plan to cure malaria in Senegal will succeed (produce $5 million in value), but the grander plan to cure it elsewhere in Africa will fail (produce $0 in value). You buy the $1 million in original tokens, activating the contract. Then other, less savvy investors buy the $9 million in remaining tokens.
My thoughts: Reviewers brought up that real venture capitalists solve this problem by having multiple funding rounds where they sell off different parts of their equity. For example, you might sell off 10% in the first round, achieve some amount, and then sell off another 10% for your next big expansion. I am nervous about this because I want to be able to pitch impact certificates to non-savvy people who may not be able to make good decisions about equity.
Or to put it another way, if someone makes $50 billion off charity and uses it to buy a yacht, then some of your charitable donations are going to yachts, which seems worse than them going to feeding the hungry or curing the sick.
Or to put it yet another way, if founders generally kept 50% of their equity, all charitable projects would be twice as expensive - the normal $X to fund the project, and then an additional $X to pay off the founder. If founders generally kept 75% of their equity, all projects would be 4x as expensive, and so on.
There are some innocuous ways to do this. For example, suppose that there are an unlimited number of malaria charities that want $1 million, and 25% of those will succeed and produce $5 million in benefits, with the other 75% producing nothing. So one way to produce $5 million in expectation is to spend $4 million funding four of these charities. Another way is to buy an impact certificate for a successful project from an investor. So suppose a savvy investor is twice as good at picking projects as the final oracular funder; she can pick a winner 50% of the time. So she pays $2 million to fund two projects, producing in expectation one successful impact certificate representing $5 million in benefits. Then it would seem that the investor and final oracular funder should agree to a price somewhere between $2 million and $4 million for the certificate; whatever number in this range they choose, both will make a profit over their next-best option. They can use normal negotiating tactics to figure out where in that range they fall, but nobody should lose money relative to the no-impact-certificates world.
How do we get an impact market to exist? Investors will only buy impact certificates if they expect that a final oracular funder will buy them, but we'll have a hard time convincing them when this has never happened before.
Someone who wants to be a final oracular funder gets in the habit of giving out retroactive prizes. For example, out of the blue they find someone who helped fight malaria, and award them $1 million. They make it clear that if someone sells an impact certificate, they will give the prize to the certificate-holder rather than the original charity. Eventually this happens enough that people grow to expect and predict it, and they can sell impact certificates around it.
But suppose you invest when there are $1 million of tokens sold, thinking that you are a slightly-better-than-average investor and so can probably do better than break even. Then later some other people come in and buy $9 million more worth of tokens. Now there are $10 million in tokens chasing $1 million in prizes, and on average each investor will only get 10% of their money back. Although some great investors could still come out ahead, it would be an unpleasant surprise to start out expecting to break even, only to learn later that you should actually only expect to get 10% of your money back.
As above, except that the amount of tokens that can be bought is some multiple of the amount of money in the pot - for example, only $1 million in tokens can be bought, so everyone knows they can on average expect to break even.
Here we would kickstart the supply side of the market with a set of grant proposals as above, but the final oracular funder would be a very large charitable organization (eg Open Phil or the Future Fund), operating at a scale so far beyond the size of the market that they could commit to funding every project that was good enough to deserve it.
We could have a standard online marketplace where people buy impact certificates (block or fractionalized) from the site with dollars (or other fiat currencies). The site would track all purchases, and in the very unlikely event that the site ever got erased, everyone would remember it anyway (eg the charity would remember who funded them). 152ee80cbc
woman voice saying hello how are you download