Augmenting Markets with Mechanisms

Optimal Execution of Portfolio Transactions

Samuel Antill and Darrell Duffie

The Review of Economic Studies, 2021, vol. 88, issue 4, 1665-1719

Abstract: We explain how the common practice of size-discovery trade detracts from overall financial market efficiency. At each of a series of size-discovery sessions, traders report their desired trades, generating allocations of the asset and cash that rely on the most recent exchange price. Traders can thus mitigate exchange price impacts by waiting for size-discovery sessions. This waiting causes socially costly delays in the rebalancing of asset positions across traders. As the frequency of size-discovery sessions is increased, exchange market depth is further lowered by the traders’ reduced incentive to bid aggressively on the exchange, further delaying the rebalancing of positions, and more than offsetting the gains from trade that occur at each of the size-discovery sessions.

Keywords: Mechanism design; Price impact; Size discovery; Allocative efficiency; Workup; Dark pool; Market design; G14; D47; D82 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Augmenting Markets with Mechanisms (2018)
Working Paper: Augmenting Markets with Mechanisms (2017)
Working Paper: Augmenting Markets with Mechanisms (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:88:y:2021:i:4:p:1665-1719.

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