Related papers: The slippage paradox
We analyze a proprietary dataset of trades by a single asset manager, comparing their price impact with that of the trades of the rest of the market. In the context of a linear propagator model we find no significant difference between the…
This paper studies the switching of trading strategies and its effect on the market volatility in a continuous double auction market. We describe the behavior when some uninformed agents, who we call switchers, decide whether or not to pay…
An investor trades a safe and several risky assets with linear price impact to maximize expected utility from terminal wealth. In the limit for small impact costs, we explicitly determine the optimal policy and welfare, in a general…
Trading styles can be classified into either trend-following or mean-reverting. If the net trading style is trend-following the traded asset is more likely to move in the same direction it moved previously (the opposite is true if the net…
The disposition effect describes investors' irrational behavior of selling profitable assets too soon while holding onto losing assets for too long. This study examines the impact of transparency at the firm level on the disposition effect…
Convex duality for two two different super--replication problems in a continuous time financial market with proportional transaction cost is proved. In this market, static hedging in a finite number of options, in addition to usual dynamic…
This paper describes asset price and return disturbances as result of relations between transactions and multiple kinds of expectations. We show that disturbances of expectations can cause fluctuations of trade volume, price and return. We…
We solve exactly a simple model of trend following strategy, and obtain the analytical shape of the profit per trade distribution. This distribution is non trivial and has an option like, asymmetric structure. The degree of asymmetry…
We consider fractional Black-Scholes market with proportional transaction costs. When transaction costs are present, one trades periodically i.e. we have the discrete trading with equidistance $n^{-1}$ between trading times. We derive a non…
We take a look the changes of different asset prices over variable periods, using both traditional and spectral methods, and discover universality phenomena which hold (in some cases) across asset classes.
Identical products being sold at different prices in different locations is a common phenomenon. Price differences might occur due to various reasons such as shipping costs, trade restrictions and price discrimination. To model such…
We consider risk averse investors with different levels of anxiety about asset price drawdowns. The latter is defined as the distance of the current price away from its best performance since inception. These drawdowns can increase either…
We formalize the paradox of an omniscient yet lazy investor - a perfectly informed agent who trades infrequently due to execution or computational frictions. Starting from a deterministic geometric construction, we derive a closed-form…
Market confidence is essential for successful investing. By incorporating multi-market into the evolutionary minority game, we investigate the effects of investor beliefs on the evolution of collective behaviors and asset prices. When there…
A trading system is said to be {robust} if it generates a robust return regardless of market direction. To this end, a consistently positive expected trading gain is often used as a robustness metric for a trading system. In this paper, we…
Shadow prices simplify the derivation of optimal trading strategies in markets with transaction costs by transferring optimization into a more tractable, frictionless market. This paper establishes that a na\"ive shadow price Ansatz for…
Interconnected agents such as firms in a supply chain make simultaneous preparatory investments to increase chances of honouring their respective bilateral agreements. Failures cascade: if one fails their agreement, then so do all who…
This paper studies a portfolio optimization problem in a discrete-time Markovian model of a financial market, in which asset price dynamics depend on an external process of economic factors. There are transaction costs with a structure that…
The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference…
It is a common belief that the behavior of shareholders depends upon the direction of price fluctuations: if prices increase they buy, if prices decrease they sell. That belief, however, is more based on ``common sense'' than on facts. In…