Alpha-Optimized Trading Schedules

Trading costs always generate an interesting discussion.  Some desks have very a pretty good handle on their costs, others could do better.  ITG paper offers a curious read on the subject:

The trading and investment style of a fund manager often has a major impact on his trading costs. Practitioners recognize that trading schedules can be optimized over an alpha pattern, but without correct identification of the price impact of own trading activity, resulting schedules are suboptimal. We propose a framework to decompose the implementation shortfall cost of a realized trading schedule into a cost component due to the projected general market movement and trades of other market participants, and a cost component capturing the impact of own
trades. We then present a methodology that simulates alternative hypothetical trading strategies and optimizes the client’s trading aggressiveness. The gains from accommodating the intraday alpha patterns of the fund managers’ executions lead to a significant reduction in the trading costs both in- and out-of-sample in most scenarios.


~ by mdavey on March 20, 2013.

One Response to “Alpha-Optimized Trading Schedules”

  1. Reblogged this on Carl A R Weir's Blog.

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