Abstract

http://ssrn.com/abstract=1293627
 
 

References (12)



 
 

Citations (13)



 


 



Measuring and Modeling Execution Cost and Risk


Robert F. Engle


New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER); New York University (NYU) - Department of Finance

Robert Ferstenberg


Morgan Stanley

Jeffrey R. Russell


University of Chicago - Booth School of Business - Econometrics and Statistics

April 2006

NYU Working Paper No. FIN-07-044

Abstract:     
We introduce a new analysis of transaction costs that explicitly recognizes the importance of the timing of execution in assessing transaction costs. Time induces a risk/cost tradeoff. The price of immediacy results in higher costs for quickly executed orders while more gradual trading results in higher risk since the value of the asset can vary more over longer periods of time. We use a novel data set that allows a sequence of transactions to be associated with individual orders and measure and model the expected cost and risk associated with different order execution approaches. The model yields a risk/cost tradeoff that depends upon the state of the market and characteristics of the order. We show how to assess liquidation risk using the notion of liquidation value at risk (LVAR).

Number of Pages in PDF File: 30

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Date posted: November 3, 2008  

Suggested Citation

Engle, Robert F. and Ferstenberg, Robert and Russell, Jeffrey R., Measuring and Modeling Execution Cost and Risk (April 2006). NYU Working Paper No. FIN-07-044. Available at SSRN: http://ssrn.com/abstract=1293627

Contact Information

Robert F. Engle (Contact Author)
New York University - Leonard N. Stern School of Business - Department of Economics ( email )
269 Mercer Street
New York, NY 10003
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
New York University (NYU) - Department of Finance
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
Robert Ferstenberg
Morgan Stanley ( email )
1585 Broadway
New York, NY 10036
United States
Jeffrey R. Russell
University of Chicago - Booth School of Business - Econometrics and Statistics ( email )
Chicago, IL 60637
United States
773-834-0720 (Phone)
773-702-0458 (Fax)
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