Optimal Liquidity Trading

Gur Huberman and Werner Stanzl

Yale School of Management Working Papers from Yale School of Management

Abstract: We study optimal liquidity trading in a framework where trade size has a price impact. A liquidity trader wishes to trade a fixed number of shares within a certain time horizon and to minimize the mean and variance of the costs of trading. Explicit formulas for the optimal trading strategies show that risk-averse liquidity traders reduce their order sizes over time and execute a higher fraction of their total trading volume in early periods when price volatility increases or price sensitivity de

Date: 2000-12-01, Revised 2001-08-01
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Related works:
Journal Article: Optimal Liquidity Trading (2005)
Journal Article: Optimal Liquidity Trading (2005)
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