SSRN Author: Craig W. HoldenCraig W. Holden SSRN Content
http://www.ssrn.com/author=32969
http://www.ssrn.com/rss/en-usWed, 01 Apr 2015 01:52:36 GMTeditor@ssrn.com (Editor)Wed, 01 Apr 2015 01:52:36 GMTwebmaster@ssrn.com (WebMaster)SSRN RSS Generator 1.0REVISION: A Theory of Optimal Institutional TradingI develop a theory of optimal trading by an institutional trader who receives a parent order (i.e., an overall trading request) from a fund manager to buy a specific quantity of a particular stock over a specified time horizon. The trader selects child orders to be submitted each period over the allotted time horizon to a limit order book market. Child orders can be either market orders or limit orders. Limit order prices can be selected from any price on a penny price grid. An unexecuted limit order can be cancelled at any time. The trader’s objective is to minimize the disutility of the fund manager. In the base version of the theory, all child orders are of unit size. I derive an analytic solution for the optimal trading strategy and show that it involves “dynamic aggressiveness.” This means that if the current period limit order executes (doesn’t execute), then the next limit order optimally has a weakly less (weakly more) aggressive price. Next, I extend the theory to: (1) ...
http://www.ssrn.com/abstract=2470280
http://www.ssrn.com/1385909.htmlTue, 31 Mar 2015 11:49:23 GMTREVISION: A Theory of Optimal Institutional TradingI develop a theory of optimal trading by an institutional trader who receives a parent order (i.e., an overall trading request) from a fund manager to buy a specific quantity of a particular stock over a specified time horizon. The trader selects child orders to be submitted each period over the allotted time horizon to a limit order book market. Child orders can be either market orders or limit orders. Limit order prices can be selected from any price on a penny price grid. An unexecuted limit order can be cancelled at any time. The trader’s objective is to minimize the disutility of the fund manager. In the base version of the theory, all child orders are of unit size. I derive an analytic solution for the optimal trading strategy and show that it involves “dynamic aggressiveness.” This means that if the current period limit order executes (doesn’t execute), then the next limit order optimally has a weakly less (weakly more) aggressive price. Next, I extend the theory to: (1) ...
http://www.ssrn.com/abstract=2470280
http://www.ssrn.com/1376255.htmlWed, 25 Feb 2015 06:30:55 GMTREVISION: The Empirical Analysis of LiquidityWe provide a synthesis of the empirical evidence on market liquidity. The liquidity measurement literature has established standard measures of liquidity that apply to broad categories of market microstructure data. Specialized measures of liquidity have been developed to deal with data limitations in specific markets, to provide proxies from daily data, and to assess institutional trading programs. The general liquidity literature has established local cross-sectional patterns, global cross-sectional patterns, and time-series patterns. Commonality in liquidity is prevalent. Certain exchange designs enhance market liquidity: a limit order book for high volume markets, a hybrid exchange for low volume markets, and multiple competing exchanges. Automatic execution increases speed, but increases spreads. A tick size reduction yields a large improvement in liquidity. Providing ex-post transparency to an otherwise opaque market dramatically improves liquidity. Opening up the limit order ...
http://www.ssrn.com/abstract=2402215
http://www.ssrn.com/1340528.htmlSat, 04 Oct 2014 04:43:50 GMTREVISION: The Empirical Analysis of LiquidityWe provide a synthesis of the empirical evidence on market liquidity. The liquidity measurement literature has established standard measures of liquidity that apply to broad categories of market microstructure data. Specialized measures of liquidity have been developed to deal with data limitations in specific markets, to provide proxies from daily data, and to assess institutional trading programs. The general liquidity literature has established local cross-sectional patterns, global cross-sectional patterns, and time-series patterns. Commonality in liquidity is prevalent. Certain exchange designs enhance market liquidity: a limit order book for high volume markets, a hybrid exchange for low volume markets, and multiple competing exchanges. Automatic execution increases speed, but increases spreads. A tick size reduction yields a large improvement in liquidity. Providing ex-post transparency to an otherwise opaque market dramatically improves liquidity. Opening up the limit order ...
http://www.ssrn.com/abstract=2402215
http://www.ssrn.com/1335766.htmlMon, 15 Sep 2014 10:07:50 GMTREVISION: Optimal Trading with Limit Orders on a Dynamic Limit Order BookI determine the optimal trading strategy for an institutional trader who wants to purchase a large number of shares over a fixed time horizon. First, I consider when a multi-period trader can submit limit orders as well as market orders. I develop a simple binomial model where limit orders either execute or not and solve it analytically. I find that the optimal sequence of limit orders involves dynamic aggressiveness. That is, if a given limit order executes (or not), then the next limit order optimally has a slightly less (more) aggressive price. I find that this trading strategy frequently beats (or at least ties) the benchmark trading strategies from the existing literature. Second, I develop an elaborate model of a multi-period trading algorithm that allows multiple orders over multiple periods to be submitted to a dynamic limit order book exchange. I calibrate the simulation to real-world summary statistics based on order data. For each trading problem, I use genetic algorithm ...
http://www.ssrn.com/abstract=2470280
http://www.ssrn.com/1321578.htmlThu, 24 Jul 2014 14:36:36 GMTREVISION: What Are the Best Liquidity Proxies for Global Research?We examine a relatively new global intraday equity dataset, Thomson Reuters Tick History (TRTH). We find that we can match a relatively high percentage of Datastream stock-years to TRTH and the database does well on several data integrity checks. Using TRTH data, we compare both monthly and daily liquidity proxies constructed from low-frequency (daily) stock data to corresponding liquidity benchmarks computed from high-frequency (intraday) data for 24,847 firms on 43 exchanges around the world on three performance dimensions: average cross-sectional correlation with the benchmarks, portfolio correlations with the benchmarks, and prediction accuracy. We find that for both monthly and daily frequencies Closing Percent Quoted Spread strongly dominates all other percent-cost proxies for global research. It has by-far the highest correlations with percent effective spread, percent quoted spread, percent realized spread, and percent price impact. It provides enormous performance gains over ...
http://www.ssrn.com/abstract=1558447
http://www.ssrn.com/1319749.htmlThu, 17 Jul 2014 15:08:47 GMTREVISION: Performance Share Plans: Valuation and Empirical TestsPerformance share plans are an increasingly important component of executive compensation. A performance share plan is an equity-based, long-term incentive plan where the number of shares to be awarded is a quasi-linear function of a performance result over a fixed time period. A special case is a performance-vested share plan, which provides a fixed number of shares whenever a performance result exceeds a threshold goal. We begin by documenting the size and importance of performance share plans and performance-vested share plans. Next, we derive closed-form formulas for the value of a performance share plan or performance-vested share plan when the performance measure is: (1) a non-traded measure following an Arithmetic Brownian Motion (e.g., earnings per share), (2) a non-traded measure following a Geometric Brownian Motion (e.g., revenue), or (3) the price of a traded asset following a Geometric Brownian Motion (e.g., a stock price). Finally, we compare the actual payout of plans ...
http://www.ssrn.com/abstract=2177363
http://www.ssrn.com/1309762.htmlWed, 04 Jun 2014 09:36:27 GMT