Optimal and equilibrium execution strategies with generalized price impact

This paper examines the execution problems of large traders with a generalized price impact. Constructing two related models in a discrete-time setting, we solve these problems by applying the backward induction method of dynamic programming. In the first problem, we formulate the expected utility maximization problem of a single large trader as a Markov decision process and derive an optimal execution strategy. Then, in the second model, we formulate the expected utility maximization problem of two large traders as a Markov game and derive an equilibrium execution strategy at a Markov perfect equilibrium. Both of these two models enable us to investigate how the execution strategies and trade performances of a large trader are affected by the existence of other traders. Moreover, we find that these optimal and equilibrium execution strategies become deterministic when the total execution volumes of non-large traders are deterministic. We also show, by some numerical examples, the comparative statics results with respect to several problem parameters.     

Irrational investor response to stock splits in an emerging market

Using the creation and collapse of the Cyprus stock market bubble as a backdrop, we document substantial positive abnormal returns around the announcement and execution of stock splits in Cyprus. Split-induced returns cannot be explained by variables proxying for conventional liquidity and signalling hypotheses for stock-split activity. Positive split-induced returns are largely reversed in the post-split months. Post-split stock underperformance is inversely related to, and thus appears to be a correction for, the significant market overreaction at split execution. We suggest an investor irrationality explanation for these results, arguing that stock splits were associated with the creation of the bubble due to the inability of investors to understand splits correctly. We conclude that educating investors in emerging markets to process information correctly will improve the efficiency of such markets.     

中国企业实施6Sigma管理法可能遇到的问题及对策

6Sigma管理法是一种灵活的综合性系统方法。它关注顾客，重视事实和数据，运用统计分析的方法，对管理、流程等进行改进、提高，从而使企业的成功最大化。当今中国企业面对激烈的全球化竞争，要谋求长远的发展，立于不败之地，必须从根本上提高产品或服务的质量，同时又必须保证成本不会因质量的提高而增加，因此有必要引入在国内外成功大企业中颇受青睐的6Sigma管理法。但是在我国企业特殊的情况下，在实施过程中又会遇到这样那样的困难，通过了解正着手于6Sigma管理法的企业或组织的实际情况，总结出企业在实施6Sigma管理法过程中遇到的四方面主要问题，即：意识薄弱、领导层的淡漠、实施过程中的理论和实践相脱节以及急于求成的心理，并针对这四类问题，提出了相应的解决方案，以期为国内企业引入6Sigma管理法作一有利的引导。     

刑事涉财产执行中的案外人权益救济——以案外人权益救济程序的当事人构造为视角

刑事涉财产执行程序因采取移送执行模式而被误认为不存在申请执行人，使得刑事涉财产执行程序及其衍生的案外人权益救济程序过分依赖执行法院的职权主义。在刑事附带民事诉讼裁判、追缴或责令退赔违法所得并返还被害人判项、责令被免予刑事处罚的被告人赔偿被害人损失判项的执行程序中，案外人权益救济程序原则上应以被害人为申请执行人，并参照适用民事强制执行程序中的案外人权益救济制度。其他刑事涉财产执行程序应以检察机关为申请执行人。除非出现被执行人逃避执行或者案外人对执行标的提出排除执行请求等特殊情形，作为申请执行人的检察机关通常无须现实参加执行程序。     

All else equal?: a multidimensional analysis of retail,market order execution quality

The extant execution quality literature generally suggests that brokers routing orders away from the NYSE might not fulfill their fiduciary best execution responsibility. This conclusion is drawn by comparing execution prices across trading venues and presumes that other execution-quality characteristics are equivalent. Using order audit-trail data, we find evidence that retail market orders obtain better trade prices on the NYSE but faster executions, more depth improvement, and order-flow payment at Trimark Securities, a Nasdaq dealer. Thus, non-price dimensions of execution quality are not equivalent across trading venues. Furthermore, considering order flow payments, brokers obtain better net prices with Trimark. If brokers pass enough of these payments through to investors in the form of lower commissions and/or better services, then investors also obtain better net prices with Trimark. Our results suggest that it may be misleading to evaluate execution quality or to base policy decisions on comparisons focusing on only execution prices.     

NYSE execution costs: A case study of a leading bank

Using trade data obtained from a major bank and a measure of indirect execution costs based on the stock price when orders are placed, we investigate indirect costs and their relation to brokerage commissions. For all trades the mean brokerage commission is 6.5 cents per share, and the mean indirect execution cost is about 3.6 cents per share, or 0.1084% of the transactions amount. Contrary to the prediction of the price pressure hypothesis, indirect execution costs are lower for larger size trades. Further, higher indirect execution costs are not associated with lower brokerage commission.     

从扩张走向限缩:税收优先权在民事执行程序中的实现路径

不论是“先税后证”还是包税条款,从结果上都呈现出税收优先权在民事执行程序中扩张的趋势。税收优先权扩张所提升的执法效率不足以弥补民事交易秩序的减损。《税收征管法》和《民事诉讼法》都没有明确规定税收优先权在民事执行中的实现方式,导致司法实践中频频出现截然不同的裁定,严重影响了执行的效率和交易的可预期性。税收债权应当遵循债权受偿的逻辑,除满足税收债权公示的形式要件外,不享有优先权。民事执行程序中的新生税款不宜一概作为执行费用优先支付。从程序要件和实体要件上对税收优先权进行限缩,有助于平衡税收债权人和民事债权人之间的利益,保障交易安全,推动税收治理能力的提升。     

Post-Reform Market-Order Execution Quality: Multidimensional Comparisons Across Market Centers

We use market‐order data to determine execution quality on the NYSE, four regional stock exchanges, and the Nasdaq InterMarket. We examine a sample period after the reduction in the minimum price variation and after the SEC imposed new order‐handling rules, and analyze dimensions of execution quality in addition to trade prices. We find that in the postreform environment, the NYSE offers execution prices that are more favorable to the investor. However, the regional exchanges and the InterMarket offer executions that are faster and that more frequently allow investors to execute orders with sizes exceeding the quoted depth at the quoted price.     

How broker ability affects institutional trading costs

The present paper shows that broker research and trade execution ability has a significant impact on the cost of institutional trading. The results reveal that there is significant variation in the ability of brokers to control execution costs. Trades executed by brokers with stronger research ability exhibit a higher permanent price impact, whereas those executed by brokers with better execution ability exhibit a lower temporary price impact. Brokers are also found to specialize on an industry level that gives rise to variation in ability within a brokerage house.     

Freedom gas to Europe: Scenarios analyzed using the Global Gas Model

State-of-the-art, open access numerical modeling of imperfectly competitive energy markets offers a sound and transparent way to address topical research questions in energy and commodity markets. We use an open access equilibrium model, the Global Gas Model (GGM), and sector-specific, politically motivated scenarios to investigate the prospects for sales of liquefied natural gas (LNG) from the U.S. into the European energy market. We discuss the risks and opportunities for U.S. LNG and derive implications for policy, business, and finance in the energy sector. We find that Europe is not an attractive market for US LNG in the base case and in scenarios of moderate support of U.S. LNG flows into Europe. In these scenarios, Asia offers higher prices for US LNG and draws substantially higher import volumes. Our modeling results show that the interconnectedness of global gas markets due to an abundance of LNG import capacity in Europe and other regions—particularly Asia—allows for adjustments to global trade patterns that mitigate the consequences of regional disturbances.     

Optimal execution with non-linear transient market impact

We study the problem of the optimal execution of a large trade in the propagator model with non-linear transient impact. From brute force numerical optimization of the cost functional, we find that the optimal solution for a buy programme typically features a few short intense buying periods separated by long periods of weak selling. Indeed, in some cases, we find negative expected cost. We show that this undesirable characteristic of the non-linear transient impact model may be mitigated either by introducing a bid–ask spread cost or by imposing convexity of the instantaneous market impact function for large trading rates; the objective in each case is to robustify the solution in a parsimonious and natural way.     

Automated Versus Floor Trading: An Analysis of Execution Costs on the Paris and New York Exchanges

A global trend towards automated trading systems raises the important question of whether execution costs are, in fact, lower than on trading floors. This paper compares the trade execution costs of similar stocks in an automated trading structure (Paris Bourse) and a floor-based trading structure (NYSE). Results indicate that execution costs are higher in Paris than in New York after controlling for differences in adverse selection, relative tick size, and economic attributes across samples. These results suggest that the present form of the automated trading system may not be able to fully replicate the benefits of human intermediation on a trading floor.     

Information, speed vs. cost trade-offs, and order routing decisions in U.S. equity markets

Prior research indicates that both execution speed and cost are important to traders, but that these two dimensions of execution quality are negatively related across U.S. equity markets. In our paper, we examine how U.S. equity traders, who are (un)informed about future price changes, trade-off between speed and cost in their order-routing decisions. We find that informed traders are more likely to choose trading systems that allow them to trade-off lower cost for faster speed; whereas, uninformed traders are more likely to choose trading systems that allow them to sacrifice speed for lower costs. Our results indicate that traders have varying preferences for the different dimensions of execution quality based on their information levels. These differences subsequently influence order-routing decisions.     

Beware the busy manager

Managers will tell you that the resource they lack most is time. If you watch them, you'll see them rushing from meeting to meeting, checking their e-mail constantly, fighting fires--an astonishing amount of fast-moving activity that allows almost no time for reflection. Managers think they are attending to important matters, but they're really just spinning their wheels. For the past ten years, the authors have studied the behavior of busy managers, and their findings should frighten you: Fully 90% of managers squander their time in all sorts of ineffective activities. A mere 10% of managers spend their time in a committed, purposeful, and reflective manner. Effective action relies on a combination of two traits: focus--the ability to zero in on a goal and see the task through to completion--and energy--the vigor that comes from intense personal commitment. Focus without energy devolves into listless execution or leads to burnout. Energy without focus dissipates into aimless busyness or wasteful failures. Plotting these two traits into a matrix provides a useful framework for understanding productivity levels of different managers. Managers who suffer from low levels of both energy and focus are the procrastinators: They dutifully perform routine tasks but fail to take initiatve. Disengaged managers have high focus but low energy: They have reservations about the jobs they are asked to do, so they approach them half-heartedly. Distracted managers have high energy but low focus: They confuse frenetic activity with constructive action. Purposeful managers are both highly energetic and highly focused: These are the managers who accomplish the most. This article will help you identify which managers in your organization are making a real difference--and which just look busy.     

Impact of a tick size reduction on liquidity: evidence from the Sydney Futures Exchange

This paper examines the impact of a reduction in the minimum price increment on liquidity and execution costs in a futures market setting. In 2006, the Sydney Futures Exchange halved the minimum tick in the 3 Year Commonwealth Treasury Bond Futures. Results indicate that bid‐ask spreads are significantly reduced after the change. Quoted depth, both at the best quotes and visible in the limit order book, is significantly lower after the tick reduction. Further analysis reveals that execution costs are significantly reduced after the change. We conclude that a tick size reduction improves liquidity and reduces execution costs in a futures market setting.     

Mechanics of good trade execution in the framework of linear temporary market impact

We define the concept of good trade execution and we construct explicit adapted good trade execution strategies in the framework of linear temporary market impact. Good trade execution strategies are dynamic, in the sense that they react to the actual realisation of the traded asset price path over the trading period; this is paramount in volatile regimes, where price trajectories can considerably deviate from their expected value. Remarkably, however, the implementation of our strategies does not require the full specification of an SDE evolution for the traded asset price, making them robust across different models. Moreover, rather than minimising the expected trading cost, good trade execution strategies minimise trading costs in a pathwise sense, a point of view not yet considered in the literature. The mathematical apparatus for such a pathwise minimisation hinges on certain random Young differential equations that correspond to the Euler–Lagrange equations of the classical Calculus of Variations. These Young differential equations characterise our good trade execution strategies in terms of an initial value problem that allows for easy implementations.     

Strategic execution in the presence of an uninformed arbitrageur

We consider a trader who aims to liquidate a large position in the presence of an arbitrageur who hopes to profit from the trader's activity. The arbitrageur is uncertain about the trader's position and learns from observed price fluctuations. This is a dynamic game with asymmetric information. We present an algorithm for computing perfect Bayesian equilibrium behavior and conduct numerical experiments. Our results demonstrate that the trader's strategy differs significantly from one that would be optimal in the absence of the arbitrageur. In particular, the trader must balance the conflicting desires of minimizing price impact and minimizing information that is signaled through trading. Accounting for information signaling and the presence of strategic adversaries can greatly reduce execution costs.     

Evaluation of the biases in execution cost estimation using trade and quote data

We use order data to assess the accuracy of execution cost estimation with trade and quote data. For our sample, estimates of the effective spread overstate actual execution costs by up to 17%. The biases result from errors in the inference of the trade direction and errors in the assignment of the benchmark quote. We find the accuracy of two popular trade direction algorithms improve marginally when trades are not lagged 5 seconds. Evaluation of the biases in execution cost measurement reveal the Ellis et al. (Journal of Financial and Quantitative Analysis (2000) 529) trade direction algorithm, combined with assigning benchmark quotes contemporaneous with trades, provides the least amount of bias. In general, biases are lower for relative effective spread estimates than effective spread estimates.     

Is market impact a measure of the information value of trades? Market response to liquidity vs. informed metaorders

We examine a data-set of institutional trades where approximately one-fourth of the trades were labelled as having been created for cash flow purposes. We aggregate near-overlapping trades into metaorders and consider information, market impact and metaorder size. We find that during the execution, the functional form and scale of market impact are similar for cash flows and other metaorders. Differences arise in the price reversion following the end of a metaorder. For cash flows, presumed to have no true information content, the impact reverts almost completely on average in two to five days. For other metaorders, we find that reversion erases about one-third of the peak impact: for each size, price reverts to the average execution price, leaving no immediate profits after accounting for trading costs. Observed mark-to-market profits on metaorders that aggregate multiple portfolio manager orders, new metaorders and Nasdaq-listed stocks suggest that these metaorders are more informed than the average. Vice-versa, we find mark-to-market losses are more likely to occur on cash flows, metaorders in large-cap stocks, metaorders that follow momentum and additions to a prior position seeking to take advantage of an improved price. The complete price reversion for cash flows suggests that the mechanical permanent impact that is considered in no-quasi-arbitrage arguments would be much smaller than the information in typical institutional metaorders.