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Augmenting Markets with Mechanisms
[Optimal Execution of Portfolio Transactions]

Author

Listed:
  • Samuel Antill
  • Darrell Duffie

Abstract

We explain how the common practice of size-discovery trade detracts from overall financial market efficiency. At each of a series of size-discovery sessions, traders report their desired trades, generating allocations of the asset and cash that rely on the most recent exchange price. Traders can thus mitigate exchange price impacts by waiting for size-discovery sessions. This waiting causes socially costly delays in the rebalancing of asset positions across traders. As the frequency of size-discovery sessions is increased, exchange market depth is further lowered by the traders’ reduced incentive to bid aggressively on the exchange, further delaying the rebalancing of positions, and more than offsetting the gains from trade that occur at each of the size-discovery sessions.

Suggested Citation

  • Samuel Antill & Darrell Duffie, 2021. "Augmenting Markets with Mechanisms [Optimal Execution of Portfolio Transactions]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(4), pages 1665-1719.
    • Handle: RePEc:oup:restud:v:88:y:2021:i:4:p:1665-1719.
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    File URL: http://hdl.handle.net/10.1093/restud/rdaa064
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    References listed on IDEAS

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    Cited by:

    1. Rohit Lamba, 2022. "Efficiency with(out) intermediation in repeated bilateral trade," Papers 2202.04201, arXiv.org.
    2. Zhu, Jianchang & Sun, Xuchu & Li, Tangrong, 2024. "Execution uncertainty of dark pools and portfolio balance," Finance Research Letters, Elsevier, vol. 63(C).

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