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Effective Trade Execution

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Author Info

  • Riccardo Cesari

    (Department of Statistics, University of Bologna, Italy)

  • Massimiliano Marzo

    (Department of Economics, University of Bologna, Italy)

  • Paolo Zagaglia

    (Department of Economics, University of Bologna, Italy)

Abstract

This paper examines the role of algorithmic trading in modern financial markets. Additionally, order types, characteristics, and special features of algorithmic trading are described under the lens provided by the large development of high frequency trading technology. Special order types are examined together with an intuitive description of the implied dynamics of the order book conditional to special orders (iceberg and hidden). The chapter provides an analysis of the transaction costs associated with trading activity and examines the most common trading strategy employed in the market. It also examines optimal execution strategy with the description of the Efficient Trading Frontier. These concepts represent the tools needed to understand the most recent innovations in financial markets and the most recent advances in microstructures research.

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Bibliographic Info

Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 41_12.

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Date of creation: Jun 2012
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Publication status: Forthcoming in G. Filbeck, K. baker (eds) (2012) Portfolio Theory and Management. Oxford University Press, Oxford.
Handle: RePEc:rim:rimwps:41_12

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Related research

Keywords: Order book; price impact; execution strategy; high frequency trading;

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  1. Albert J. Menkveld & Boyan Jovanovic, 2010. "Middlemen in Limit Order Markets," 2010 Meeting Papers 955, Society for Economic Dynamics.
  2. Jim Gatheral & Alexander Schied, 2011. "Optimal Trade Execution Under Geometric Brownian Motion In The Almgren And Chriss Framework," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 14(03), pages 353-368.
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