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Optimal Execution in a Market with Small Investors

Ryosuke Ishii ()
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Ryosuke Ishii: Institute of Economic Research, Kyoto University

No 653, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: We consider the dynamic trading strategies that minimize the expected cost of trading a large block of securities over a fixed finite number of periods and the endogenously determined price impact function that yields the execution prices for individual trades. This analysis is novel in that it introduces market participants other than institutional investors and constructing a general equilibrium model. We find that institutional investors are much more likely to speculate to exploit private informations and price impact function changes over time, which has been left unnoticed in the existing literature.

Pages: 19pages
Date: 2008-05
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