An investor has an order for 1,000,000 shares of stock RLK and the market impact cost of the order is $50,000 dollars which is 50 basis points (bp).

If the investor doubles the order to 2,000,000 shares of RLK, estimate the market impact cost both in dollars and in basis points for the new order of 2,000,000 shares.

If the investor reduces the order to 500,000 shares of RLK, estimate the market impact cost both in dollars and basis points for the new order of 500,000 shares.

Hint: A graph of market impact cost in dollars and a graph of market impact cost in basis points may help to understand the question and answer.

Answer rating: 100% (QA)

To estimate the market impact cost for different order sizes we can use the concept of basis points ... View the full answer