VGSF Finance Research Seminar

Wirtschaftsuniversität Wien , Departments 3 3.0.225 11:00 - 12:30

Art Vortrag/Diskussion
Vortragende/r Albert Menkveld (VU University Amsterdam)
Veranstalter Wirtschaftsuniversität Wien Large Orders in Small Markets: On Optimal Execution with Endogenous Liquidity Supply
Kontakt office@vgsf.ac.at

The FRS informs about state-of-the-art research in Finance.

We solve a Stackelberg game where a large uninformed seller executes optimally, fully cognizant of the response of Cournot-competitive market makers. The game therefore endogenizes both demand and supply of liquidity. The closed-form solution yields several insights. First, stealth trading is both privately and socially costly because market makers incur additional cost not knowing when execution ends. Second, the presence of a large seller does not unambiguously benefit other participants. Market makers benefit only if there is enough risk-absorption capacity or if the execution period is short. Other investors benefit only when the seller sells at high enough intensity.

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