TY - JOUR
T1 - Information and trading targets in a dynamic market equilibrium
AU - Choi, Jin Hyuk
AU - Larsen, Kasper
AU - Seppi, Duane J.
N1 - Funding Information:
The authors thank Ron Kaniel (editor) and Ohad Kadan (referee) for valuable guidance and suggestions that led to many improvements. We also benefited from helpful comments from Ji-Yeol Jimmy Oh, Dermot Murphy, Barbara Rindi, Steve Shreve, Mihai Sirbu, Matthew Spiegel, S. Viswanathan, Gordan Žitković, and seminar participants at the University of Illinois at Chicago and at the 2015 NYU Microstructure Conference, the 6th Annual Stevens Conference on High Frequency Finance and Data Analytics, and the 13th Annual Conference of the Asia-Pacific Association of Derivatives. The first author has been supported by the National Research Foundation of Korea under Grant No. 2017R1E1A1A03070732 (2017-2020) and the UNIST Start-up fund No. 1.160099.01 (2016-2019). The second author has been supported by the National Science Foundation under Grant No. DMS-1411809 (2014 - 2017) and DMS-1812679 (2018 - 2021). Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the National Science Foundation (NSF).
Funding Information:
The authors thank Ron Kaniel (editor) and Ohad Kadan (referee) for valuable guidance and suggestions that led to many improvements. We also benefited from helpful comments from Ji-Yeol Jimmy Oh, Dermot Murphy, Barbara Rindi, Steve Shreve, Mihai Sirbu, Matthew Spiegel, S. Viswanathan, Gordan ?itkovi?, and seminar participants at the University of Illinois at Chicago and at the 2015 NYU Microstructure Conference, the 6th Annual Stevens Conference on High Frequency Finance and Data Analytics, and the 13th Annual Conference of the Asia-Pacific Association of Derivatives. The first author has been supported by the National Research Foundation of Korea under Grant No. 2017R1E1A1A03070732 (2017-2020) and the UNIST Start-up fund No. 1.160099.01 (2016-2019). The second author has been supported by the National Science Foundation under Grant No. DMS-1411809 (2014 - 2017) and DMS-1812679 (2018 - 2021). Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the National Science Foundation (NSF).
Publisher Copyright:
© 2018 Elsevier B.V.
PY - 2019/6
Y1 - 2019/6
N2 - This paper describes equilibrium interactions between dynamic portfolio rebalancing given a private end-of-day trading target and dynamic trading on long-lived private information. Order-splitting for portfolio rebalancing injects multifaceted dynamics in the market. These include autocorrelated order flow, sunshine trading, endogenous learning, and short-term speculation. The model has testable implications for intraday patterns in volume, liquidity, price volatility, order-flow autocorrelation, differences between informed-investor and rebalancer trading strategies, and for how these patterns comove with trading-target volatility and other market conditions.
AB - This paper describes equilibrium interactions between dynamic portfolio rebalancing given a private end-of-day trading target and dynamic trading on long-lived private information. Order-splitting for portfolio rebalancing injects multifaceted dynamics in the market. These include autocorrelated order flow, sunshine trading, endogenous learning, and short-term speculation. The model has testable implications for intraday patterns in volume, liquidity, price volatility, order-flow autocorrelation, differences between informed-investor and rebalancer trading strategies, and for how these patterns comove with trading-target volatility and other market conditions.
KW - Market microstructure
KW - Optimal order execution
KW - Order-splitting
KW - Parent and child orders
KW - Portfolio rebalancing
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U2 - 10.1016/j.jfineco.2018.11.003
DO - 10.1016/j.jfineco.2018.11.003
M3 - Article
AN - SCOPUS:85057031563
SN - 0304-405X
VL - 132
SP - 22
EP - 49
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 3
ER -