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Shortermism and excessive risk taking in optimal execution with a target performance

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  • Emilio Barucci
  • Yuheng Lan

Abstract

We deal with the optimal execution problem when the broker's goal is to reach a performance barrier avoiding a downside barrier. The performance is provided by the wealth accumulated by trading in the market, the shares detained by the broker evaluated at the market price plus a slippage cost yielding a quadratic inventory cost. Over a short horizon, this type of remuneration leads, at the same time, to a more aggressive and less risky strategy compared to the classical one, and over a long horizon the performance turns to be poorer and more dispersed.

Suggested Citation

  • Emilio Barucci & Yuheng Lan, 2025. "Shortermism and excessive risk taking in optimal execution with a target performance," Papers 2505.15611, arXiv.org.
    • Handle: RePEc:arx:papers:2505.15611
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    References listed on IDEAS

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    10. Emilio Barucci & Gaetano Bua & Daniele Marazzina, 2018. "On relative performance, remuneration and risk taking of asset managers," Annals of Finance, Springer, vol. 14(4), pages 517-545, November.
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