This paper presents a continuous-time equilibrium model of TWAP tradingand 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 .
This paper presents a continuous-time model of intraday trading, pricing, and liquidity with dynamic TWAP and VWAP benchmarks. The model is solved in closed-form for the competitive equilibrium and also for non-price-taking equilibria. The intraday trajectories of TWAP trading targets cause predictable intraday patterns of price pressure, and randomness in VWAP target trajectories induces additional randomness in intraday price-pressure patterns. TWAP and VWAP trading both reduce market liquidity and increase price volatility relative to just terminal trading targets alone. The model is computationally tractable, which lets us provide a number of numerical illustrations .
R
equilibrium model of TWAP tradingand liquidity provision in a market with multiple strategic investors with heterogeneous intraday trading targets. We solve the model
model of intraday trading, pricing, and liquidity with dynamic TWAP and VWAP benchmarks. The model is solved
R
and show there are infinitely many equilibria. We compare
for
R
with different
and also for
R
In addition, we show intraday TWAP benchmarking reduces market liquidity
The intraday trajectories of TWAP trading targets cause predictable intraday patterns of price pressure, and randomness in VWAP target trajectories induces additional randomness in intraday price-pressure patterns. TWAP and VWAP trading both reduce market liquidity and increase price volatility
R
and we
which lets us
D
. An extension to stochastic VWAP targets is also provided