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Improving VWAP strategies: A dynamical volume approach

Author

Listed:
  • Jedrzej Białkowski

    (Department of Finance, Faculty of Business, Auckland University of Technology)

  • Serge Darolles

    (Société Générale Asset Management AI, Center for Research in Economics and Statistics (CREST))

  • Gaëlle Le Fol

    (University of Evry, Center for Research in Economics and Statistics (CREST), and Europlace Institute of Finance)

Abstract

In this paper, we present a new methodology for modeling intraday volume which allows for a reduction of the execution risk in VWAP (Volume Weighted Average Price) orders. The results are obtained for the all stocks included in the CAC40 index at the beginning of September 2004. The idea of considered models is based on the decomposition of traded volume into two parts: one reflects volume changes due to market evolutions, the second describes the stock specific volume pattern. The dynamics of the specific part of volume is depicted by ARMA, and SETAR models. The implementation of VWAP strategies imposes some dynamical adjustments within the day.

Suggested Citation

  • Jedrzej Białkowski & Serge Darolles & Gaëlle Le Fol, 2006. "Improving VWAP strategies: A dynamical volume approach," Documents de recherche 06-08, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    • Handle: RePEc:eve:wpaper:06-08
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    References listed on IDEAS

    as
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    2. Robert F. Engle & Jeffrey R. Russell, 1998. "Autoregressive Conditional Duration: A New Model for Irregularly Spaced Transaction Data," Econometrica, Econometric Society, vol. 66(5), pages 1127-1162, September.
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