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Execution uncertainty of dark pools and portfolio balance

Author

Listed:
  • Zhu, Jianchang
  • Sun, Xuchu
  • Li, Tangrong

Abstract

Execution uncertainty can disrupt portfolio balance; for example, dark pool orders for some assets in the portfolio are executed while others are not. To alleviate this problem, we consider a conditional dark pool order in a discrete model of the optimal portfolio execution strategy. Conditional dark pool orders allow an investor to submit a portfolio that will be executed only if the condition that all assets in the portfolio are executable is met. Additionally, dark pools are trading systems established for large transactions. We provide new insight into the puzzle of small average dark pool order size through portfolio balance.

Suggested Citation

  • Zhu, Jianchang & Sun, Xuchu & Li, Tangrong, 2024. "Execution uncertainty of dark pools and portfolio balance," Finance Research Letters, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:finlet:v:63:y:2024:i:c:s1544612324003064
    DOI: 10.1016/j.frl.2024.105276
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    References listed on IDEAS

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    More about this item

    Keywords

    Optimal execution; Dark pool; Portfolio management;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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