Information and trading targets in a dynamic market equilibrium

Jin Hyuk Choi, Kasper Larsen and Duane J. Seppi

Journal of Financial Economics, 2019, vol. 132, issue 3, 22-49

Abstract: 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.

Keywords: Order-splitting; Parent and child orders; Optimal order execution; Portfolio rebalancing; Market microstructure (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:132:y:2019:i:3:p:22-49

DOI: 10.1016/j.jfineco.2018.11.003

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