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Medium · statistical_analysis · Quant Researcher interview question · kyle_lambda, price_impact, market_microstructure, ols_regression, statistical_analysis
Kyle's lambda is a key market microstructure metric that quantifies the permanent price impact of order flow. It is estimated via a linear regression of price changes on signed trade volumes. In quantitative finance, lambda is used to measure adverse selection, optimize trade execution, and assess asset illiquidity. Task Implement the function kyle_lambda(price_changes: list, signed_volumes: list) -> float to estimate the price impact coefficient (lambda) from the Ordinary Least Squares (OLS) r