scholarly journals Price impact equilibrium with transaction costs and TWAP trading

2021 ◽  
Author(s):  
Eunjung Noh ◽  
Kim Weston
Keyword(s):  
Transaction Costs ◽  
Price Impact

scholarly journals IMPLICIT TRANSACTION COSTS AND THE FUNDAMENTAL THEOREMS OF ASSET PRICING

2017 ◽  
Vol 20 (04) ◽  
pp. 1750024 ◽  
Author(s):  
ERINDI ALLAJ
Keyword(s):  
Asset Pricing ◽  
Transaction Costs ◽  
Price Impact ◽  
Quadratic Variation ◽  
Trading Strategies ◽  
Arbitrage Pricing Theory ◽  
Bid Ask Spread ◽  
Bid Price ◽  
Equivalent Probability Measure ◽  
Implicit Transaction Costs

This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded volume. The investors in the market always buy at the ask and sell at the bid price. Implicit transaction costs are composed of two terms, one is able to capture the bid-ask spread, and the second the price impact. Moreover, a new definition of a self-financing portfolio is obtained. The self-financing condition suggests that continuous trading is possible, but is restricted to predictable trading strategies having cádlág (right-continuous with left limits) and cáglád (left-continuous with right limits) paths of bounded quadratic variation and of finitely many jumps. That is, cádlág and cáglád predictable trading strategies of infinite variation, with finitely many jumps and of finite quadratic variation are allowed in our setting. Restricting ourselves to cáglád predictable trading strategies, we show that the existence of an equivalent probability measure is equivalent to the absence of arbitrage opportunities, so that the first fundamental theorem of asset pricing (FFTAP) holds. It is also shown that the use of continuous and bounded variation trading strategies can improve the efficiency of hedging in a market with implicit transaction costs. To better understand how to apply the theory proposed we provide an example of an implicit transaction cost economy that is linear and nonlinear in the order size.

Liquidity premium and the Corwin-Schultz bid-ask spread estimate

2014 ◽  
Vol 4 (2) ◽  
pp. 168-186 ◽  
Author(s):  
Xindong Zhang ◽  
Junxian Yang ◽  
Huimin Su ◽  
Shun Zhang
Keyword(s):  
Asset Pricing ◽  
Transaction Costs ◽  
Price Impact ◽  
Current Debate ◽  
Liquidity Premium ◽  
Cross Sectional ◽  
Content Type ◽  
Bid Ask Spread ◽  
Academic Researchers ◽  
Liquidity Measures

Purpose – The purpose of this paper is to explore the price implication of a newly developed estimator of the bid-ask spread by Corwin and Schultz (2012). The paper focusses on whether the new measure as a liquidity proxy commands a significant premium. The research helps the understanding on the validity of the Corwin-Schultz estimate as a liquidity measure. Design/methodology/approach – The authors carry out their examination based on the portfolio approach, cross-sectional regressions, and time-series regressions. For comparison, the authors also adopt other three liquidity proxies and mainly rely on the Fama-French three-factor model as the benchmark. The sample includes NYSE/AMEX/ARCA/NASDAQ ordinary common stocks over 1926-2010. Findings – The paper finds that Corwin-Schultz spread lacks significant power to predict returns either in the pre- or post-1963 period. In contrast, other liquidity measures such as the price impact of Amihud (2002), trading discontinuity of Liu (2006), and turnover show stronger return predictability than the Corwin-Schultz spread estimate. Research limitations/implications – The evidence indicates the limited ability of the Corwin-Schultz spread estimate to describe liquidity. Practical implications – The comparison of the Corwin-Schultz spread with other liquidity measures helps practitioners and academic researchers to identify the appropriate proxy. Originality/value – This paper, for the first time, provides a thorough assessment of the Corwin-Schultz spread estimate as a liquidity proxy, which distinguish from Corwin and Schultz (2012) who focus on whether their spread estimate measures transaction costs. Our study not only helps practitioners and academic researchers to select an adequate liquidity measure and an asset pricing model to use, but it also sheds light on the current debate about whether transaction costs have the first order importance in asset pricing.

scholarly journals Robust Portfolio Optimization in an Illiquid Market in Discrete-Time

Mathematics ◽  
2019 ◽  
Vol 7 (12) ◽  
pp. 1147 ◽  
Author(s):  
Nikolay Andreev
Keyword(s):  
Transaction Costs ◽  
Portfolio Selection ◽  
Price Impact ◽  
Alternative Form ◽  
Programming Approach ◽  
Model Errors ◽  
Dynamic Programming Approach ◽  
Robust Portfolio Optimization ◽  
Wide Range ◽  
Robust Portfolio

We present a robust dynamic programming approach to the general portfolio selection problem in the presence of transaction costs and trading limits. We formulate the problem as a dynamic infinite game against nature and obtain the corresponding Bellman-Isaacs equation. Under several additional assumptions, we get an alternative form of the equation, which is more feasible for a numerical solution. The framework covers a wide range of control problems, such as the estimation of the portfolio liquidation value, or portfolio selection in an adverse market. The results can be used in the presence of model errors, non-linear transaction costs and a price impact.

scholarly journals Hedging nontradable risks with transaction costs and price impact

2020 ◽  
Vol 30 (3) ◽  
pp. 833-868 ◽  
Author(s):  
Álvaro Cartea ◽  
Ryan Donnelly ◽  
Sebastian Jaimungal
Keyword(s):  
Transaction Costs ◽  
Price Impact

scholarly journals Optimal Execution in a Multiplayer Model of Transient Price Impact

2017 ◽  
Vol 03 (03n04) ◽  
pp. 1850007 ◽  
Author(s):  
Elias Strehle
Keyword(s):  
Nash Equilibrium ◽  
Transaction Costs ◽  
Closed Form ◽  
Exponential Decay ◽  
Existence And Uniqueness ◽  
Price Impact ◽  
Execution Costs ◽  
Large Order ◽  
Optimal Execution ◽  
Form Representation

Trading algorithms that execute large orders are susceptible to exploitation by order anticipation strategies. This paper studies the influence of order anticipation strategies in a multi-investor model of optimal execution under transient price impact. Existence and uniqueness of a Nash equilibrium is established under the assumption that trading incurs quadratic transaction costs. A closed-form representation of the Nash equilibrium is derived for exponential decay kernels. With this representation, it is shown that while order anticipation strategies raise the execution costs of a large order significantly, they typically do not cause price overshooting in the sense of Brunnermeier and Pedersen.

From transaction costs to transaction value: Overcoming the frictional paradigm

2020 ◽  
pp. 51-81
Author(s):  
D. P. Frolov
Keyword(s):  
Transaction Costs ◽  
Transaction Cost ◽  
Path Dependence ◽  
Transaction Cost Economics ◽  
Cost Minimization ◽  
Low Cost ◽  
Coase Theorem ◽  
Transactional Analysis ◽  
Transaction Sector ◽  
Transaction Value

The transaction cost economics has accumulated a mass of dogmatic concepts and assertions that have acquired high stability under the influence of path dependence. These include the dogma about transaction costs as frictions, the dogma about the unproductiveness of transactions as a generator of losses, “Stigler—Coase” theorem and the logic of transaction cost minimization, and also the dogma about the priority of institutions providing low-cost transactions. The listed dogmas underlie the prevailing tradition of transactional analysis the frictional paradigm — which, in turn, is the foundation of neo-institutional theory. Therefore, the community of new institutionalists implicitly blocks attempts of a serious revision of this dogmatics. The purpose of the article is to substantiate a post-institutional (alternative to the dominant neo-institutional discourse) value-oriented perspective for the development of transactional studies based on rethinking and combining forgotten theoretical alternatives. Those are Commons’s theory of transactions, Wallis—North’s theory of transaction sector, theory of transaction benefits (T. Sandler, N. Komesar, T. Eggertsson) and Zajac—Olsen’s theory of transaction value. The article provides arguments and examples in favor of broader explanatory possibilities of value-oriented transactional analysis.

Non-Public Monetary Systems in information Economy

2013 ◽  
pp. 151-159
Author(s):  
O. Krasilnikov ◽  
E. Krasilnikova
Keyword(s):  
Transaction Costs ◽  
Information Economy ◽  
Internet Technologies ◽  
Monetary Systems ◽  
Public Money ◽  
Economic Institution

The article discusses the development of non-public monetary systems (NPMS), defined as a specific economic institution. It presents their comparison with public money systems depending on the size of transaction costs. The authors come to the conclusion that in conditions of the information economy on the basis of Internet-technologies NPMS receive a new impetus to their development and can make serious competition in regard to public monetary systems.

Transactions in science in comparative perspective

2018 ◽  
pp. 52-69
Author(s):  
A. N. Oleinik
Keyword(s):  
Transaction Costs ◽  
Academic Freedom ◽  
North American ◽  
Institutional Environment ◽  
Scientific Productivity ◽  
Institutional Environments ◽  
Academic Administrator ◽  
The North ◽  
American Case ◽  
Transactional Approach

The article develops a transactional approach to studying science. Two concepts play a particularly important role: the institutional environment of science and scientific transaction. As an example, the North-American and Russian institutional environments of science are compared. It is shown that structures of scientific transactions (between peers, between the scholar and the academic administrator, between the professor and the student), transaction costs and the scope of academic freedom differ in these two cases. Transaction costs are non-zero in both cases, however. At the same time, it is hypothesized that a greater scope of academic freedom in the North American case may be a factor contributing to a higher scientific productivity.

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