Optimal Trade Execution Under Endogenous Order Flow

• 成果类型: Article; Early Access
• 署名作者: Chen, Ying; Horst, Ulrich; Tran, Hoang Hai
• 署名单位: National University of Singapore; Humboldt University of Berlin; National University of Singapore
• 刊物名称: OPERATIONS RESEARCH
• ISSN/ISSBN: 0030-364X
• DOI: 10.1287/opre.2023.0151
• 发表日期: 2025
• 关键词: market-impact; price manipulation; limit; time; calibration; books; MODEL

摘要

We consider an optimal liquidation model in which an investor is required to execute meta-orders during intraday trading periods, and his trading activity triggers child orders and endogenously affects future order flow, both instantaneously and permanently. Under the assumptions of risk neutrality and deterministic constants of the impact parameters, we provide closed-form solutions and illustrate the relationship between trading strategies and feedback effects. The optimal trading strategy is of hyperbolic form if the feedback effect of current trading on future order flow is not too strong. If the feedback effect becomes too dominating, a cyclic strategy with possible beneficial round-trips may emerge. Our results extend to risk-averse investors for which semiclosed form solutions involving inverse Laplace transforms are obtained. We set up an estimation framework so that parameter estimates can be made directly from public data and are consistent with the theoretical model. When implementing our model on 110 NASDAQ stocks, the empirical analysis shows that as the level of endogeneity increases, our strategy provides increasingly better performance than the commonly adopted trading strategy. The empirical analysis also shows that too strong feedback effects do not exist in practice, thus ruling out statistical arbitrage.