This paper presents a continuous-time equilibrium model of TWAP trading and liquidity provision in a market with multiple strategic investors with heterogeneous intraday trading targets. We solve the model in closed-form and show there are infinitely many equilibria. We find the welfare-maximizing equilibrium and the competitive equilibrium and show that they can be different . The model is computationally tractable, and we provide a number of numerical illustrations. An extension to stochastic VWAP targets is also provided.
This paper presents a continuous-time equilibrium model of TWAP trading and liquidity provision in a market with multiple strategic investors with heterogeneous intraday trading targets. We solve the model in closed-form and show there are infinitely many equilibria. We compare the competitive equilibrium with different non-price-taking equilibria. In addition, we show intraday TWAP benchmarking reduces market liquidity relative to just terminal trading targets alone . The model is computationally tractable, and we provide a number of numerical illustrations. An extension to stochastic VWAP targets is also provided.
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find the welfare-maximizing equilibrium and the competitive equilibrium and show that they can be different
compare the competitive equilibrium with different non-price-taking equilibria. In addition, we show intraday TWAP benchmarking reduces market liquidity relative to just terminal trading targets alone