Large Orders in Small Markets: Execution with Endogenous Liquidity Supply

42 Pages Posted: 6 Feb 2019 Last revised: 20 Jan 2022

See all articles by Agostino Capponi

Agostino Capponi

Columbia University

Albert J. Menkveld

Vrije Universiteit Amsterdam

Hongzhong Zhang

Columbia University

Date Written: January 19, 2022


We model the execution of large uninformed sell orders in the presence of strategic competitive market makers. We solve for the unique symmetric equilibrium of the model in closed-form.
Our equilibrium results reproduce the empirically observed patterns that (i) short orders execute at higher intensity and (ii) price pressure may subside even before execution ends. We
further find that the presence of a large order benefits market makers unambiguously, but benefits other (small) investors only if the order trades at high enough intensity

Keywords: large orders, market making, liquidity supply, investors' welfare

JEL Classification: G10

Suggested Citation

Capponi, Agostino and Menkveld, Albert J. and Zhang, Hongzhong, Large Orders in Small Markets: Execution with Endogenous Liquidity Supply (January 19, 2022). Available at SSRN: or

Agostino Capponi

Columbia University ( email )

S. W. Mudd Building
New York, NY 10027
United States

Albert J. Menkveld (Contact Author)

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
+31 20 5986130 (Phone)
+31 20 5986020 (Fax)

Hongzhong Zhang

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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