EQ Impact Model uses advanced methodology
The EQ Impact Model is a third-generation market impact model.
A third-generation market impact model is a stock-specific, price-pattern and volume-pattern model.
Each security has its own market impact model.
A third-generation model combines price-pattern factors such as Volatility, Spread and Days Turnover with volume-pattern factors such as Volume Predictability, Volume Persistence and Volume Flexibility.
Additional price-related factors used by advanced models are Momentum, Upside Risk and Downside Risk.
Our EQ Impact Model is an example of an advanced third-generation market impact model.
Key to EQ Impact Model
EQ Impact Model tested across markets across time
The EQ Impact Model was developed over a period of 10 years using a theoretical examination of empirical data across several brokers, many fund managers and across different markets.
Results were then examined by experienced market practitioners as a final reasonableness check.
This ensures that the EQ Impact Model is soundly based, rigorously constructed, theoretically valid and practically useful.
EQ Impact Model highlights buying impact is often different from selling impact
Often the market impact experienced when buying a line of stock is different than the market impact experienced when selling the same size line of the same security.
This difference can generally be explained by such factors as Momentum, Upside Risk and Downside Risk of the security.
The EQ Impact Model reflects this directional impact difference, whereas many less-advanced models ignore this market phenomenon.
EQ Impact Model specifies expected impact-free volume
The EQ Impact Model determines the unique impact-free volume, if any, for each security.
The flat portion of the blue line on the EQ Impact Model chart represents the impact-free volume when buying.
Similarly, the flat portion of the red line represents the impact-free volume when selling.
It is not unusual for impact-free volume to be different when buying than selling.
Note that many securities do not have any impact-free volume.
Daily updates of EQ Impact Model available for subscriber systems
All stocks in the EQuniverse are updated after each trading day.
Thus all recent changes in price-patterns and volume-patterns are reflected in the EQ Impact Model well in advance of market opening the following day.
This ensures that the EQ Impact Model remains timely, relevant and useable.
Subscribers to EQ Execution Tools have this daily EQdata available to use within their own systems.