Kyle's Lambda (λ)
Market Microstructure glossary · Adverse Selection & Information Asymmetry
Definition
The price impact coefficient in the Kyle (1985) model, measuring the price change per unit of signed order flow.
Kyle's Lambda (λ) in plain English
Kyle's Lambda is a single number that tells you how much a price jumps for every extra unit of buying (or selling) pressure. In Kyle's famous 1985 model, if lots of net buy orders come in, the price rises by λ times the size of that imbalance — so a big lambda means the market is jumpy and even modest orders shove the price a lot, while a small lambda means the market can absorb big trades calmly. Think of it as the market's sensitivity dial: pushing on a stiff spring (high λ) moves it more per push than a loose one (low λ). It's basically a precise measure of how illiquid a market is and how much your own trading will move the price against you.
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