Information and Trading Targets in a Dynamic Market Equilibrium

75 Pages Posted: 8 Feb 2015 Last revised: 19 Apr 2018

See all articles by Jin Hyuk Choi

Jin Hyuk Choi

Ulsan National Institute of Science and Technology (UNIST)

Kasper Larsen

Rutgers, The State University of New Jersey

Duane J. Seppi

Carnegie Mellon University - David A. Tepper School of Business

Date Written: April 7, 2018

Abstract

This paper describes equilibrium interactions between dynamic portfolio rebalancing given a private end-of-day trading target and dynamic trading on long-lived private information. Order-splitting for portfolio rebalancing injects multi-faceted dynamics in the market. These include autocorrelated order flow, sunshine trading, endogenous learning, and short-term speculation. The model has testable implications for intraday patterns in volume, liquidity, price volatility, order-flow autocorrelation, differences between informed-investor and rebalancer trading strategies, and for how these patterns comove with trading-target volatility and other market conditions.

Keywords: Order-splitting, parent and child orders, optimal order execution, portfolio rebalancing, market microstructure

JEL Classification: G14

Suggested Citation

Choi, Jin Hyuk and Larsen, Kasper and Seppi, Duane J., Information and Trading Targets in a Dynamic Market Equilibrium (April 7, 2018). Available at SSRN: https://ssrn.com/abstract=2561507 or http://dx.doi.org/10.2139/ssrn.2561507

Jin Hyuk Choi

Ulsan National Institute of Science and Technology (UNIST) ( email )

gil 50
Ulsan, 689-798
Korea, Republic of (South Korea)

Kasper Larsen (Contact Author)

Rutgers, The State University of New Jersey ( email )

311 North 5th Street
New Brunswick, NJ 08854
United States

Duane J. Seppi

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412-268-2298 (Phone)
412-268-8896 (Fax)

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