| Popis: |
We study two aspects of the transition to electronic markets for large uninformed traders: (1) the increase in trading frequency, and (2) the move to anonymous trading, which challenged the implementation of reputation-based strategies. We present a model of optimal execution where a risk-neutral trader must sell over multiple trading periods before a fixed deadline to several risk-averse market makers. We model trading frequency as the number of trading periods over a fixed time intervial, and reputationbased strategies as the ability to commit ex-ante to a sequence of market orders, what we refer to as scheduling. While scheduling and more trading periods are both valuable, a trader typically prefers scheduling over more trading periods. Moreover, the benefits of scheduling significantly increase when coupled with more frequent trading, and outweigh the potential costs associated with predatory trading against predictable orders. Our model suggests that transparent execution algorithms, which could be used to implement scheduling in anonymous electronic markets, may have important benefits for large, uninformed traders. |
