ABSTRACT
In this chapter, we focus on one of the fundamental subjects of execution: Market Impact (MI). The impact of current trade on the future trades is of interest to traders to develop pre and post trade analytics. We bring in the intuition on the inner works of market impact and build the functional form of standard MI models from first principles. We then go into more details through a review of select literature to guide the reader who may be interested in more advanced studies. The empirical estimation of transaction costs is discussed through a unique data set, which confirms the square root law that is commonly followed in industry.
