Improving VWAP strategies: A dynamic volume approach |
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Authors: | J?drzej Bia?kowski Serge Darolles Gaëlle Le Fol |
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Institution: | 1. Department of Finance, School of Business, Auckland University of Technology, New Zealand;2. Société Générale Asset Management AI, Center for Research in Economics and Statistics (CREST), France;3. EPEE, University of Evry, and Center for Research in Economics and Statistics (CREST), France |
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Abstract: | In this paper, we present a new methodology for modelling intraday volume, which allows for a reduction of the execution risk in VWAP (Volume Weighted Average Price) orders. The results are obtained for all the stocks included in the CAC40 index at the beginning of September 2004. The idea of considered models is based on the decomposition of traded volume into two parts: one reflects volume changes due to market evolution; the second describes the stock specific volume pattern. The dynamic of the specific volume part is depicted by ARMA and SETAR models. The implementation of VWAP strategies allows some dynamic adjustments during the day in order to improve tracking of the end-of-day VWAP. |
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Keywords: | C53 G12 G29 |
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