Do Electronic Markets Improve Execution If You Cannot Identify Yourself?

72 Pages Posted: 18 Mar 2021 Last revised: 22 Feb 2023

See all articles by John J. Shim

John J. Shim

University of Notre Dame - Mendoza College of Business

Yenan Wang

Amsterdam Business School, University of Amsterdam

Date Written: February 21, 2023

Abstract

We study the execution strategies of a large uninformed trader over the transition from human-based markets to electronic markets, focusing on two elements of this transition: (1) the increase in trading frequency, and (2) the loss of commitment power. We develop a multi-period model with symmetric information where an uninformed trader must liquidate her position to several market makers. A trader without commitment power is unambiguously better off from an increase in trading frequency. A trader that exchanges commitment power for more frequent trading is worse off. Commitment power is especially valuable if it can be coupled with frequent trading.

Keywords: Commitment Power, Optimal Execution, Trading Frequency

JEL Classification: G12, L13

Suggested Citation

Shim, John J. and Wang, Yenan, Do Electronic Markets Improve Execution If You Cannot Identify Yourself? (February 21, 2023). Available at SSRN: https://ssrn.com/abstract=3805830 or http://dx.doi.org/10.2139/ssrn.3805830

John J. Shim

University of Notre Dame - Mendoza College of Business ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Yenan Wang (Contact Author)

Amsterdam Business School, University of Amsterdam ( email )

Roetersstraat 18
Amsterdam, 1018 WB
Netherlands

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