Optimal control of execution costs

Journal of Financial Markets

Volumn 1, Issue 1, 1998, Pages 1-50

  Bertsimas, Dimitris ^a   Lo, Andrew W ^a  

^a MASSACHUSETTS INSTITUTE OF TECHNOLOGY   (United States)

Author keywords

G23; Market microstructure; Portfolio management; Transactions costs

Indexed keywords

EID: 0002267373     PISSN: 13864181     EISSN: None     Source Type: Journal    
DOI: 10.1016/S1386-4181(97)00012-8     Document Type: Article

References (82)

1. Aiyagari R., Gertler M. Asset returns with transactions costs and uninsured individual risk. Journal of Monetary Economics. 27:1991;311-332.
2. Allen F., Gale D. Stock-price manipulation. Review of Financial Studies. 5:1992;503-529.
3. Angel, J., 1994. Limit versus market orders. Working Paper No. FINC-1377-01-293, School of Business Administration, Georgetown University.
4. Arnott R., Wagner W. The measurement and control of trading costs. Financial Analyst Journal. 46:1990;73-80.
5. Barclay M., Litzenberger R. Announcement effects of new equity issues and the use of intraday price data. Journal of Financial Economics. 21:1988;71-100.
6. Barclay M., Warner J. Stealth trading and volatility: which trades move prices? Journal of Financial Economics. 34:1993;281-306.
7. Bensaid B., Lesne J., Pages H., Scheinkman J. Derivative asset pricing with transaction costs. Mathematical Finance. 2:1992;63-86.
8. Berkowitz S., Logue D., Noser E. Jr. The total cost of transactions on the NYSE. Journal of Finance. 43:1988;97-112.
9. Bernhardt, D., Hughson, E., 1994. Splitting orders. Working Paper, Department of Economics, Queen's University.
10. Bertsekas, D., 1995. Dynamic programming and optimal control, vol. I. Athena Scientific, Belmont, MA.
11. Bertsimas, D., Lo, A., 1998. A static optimization alternative to dynamic programming with constraints. Working paper, Sloan School of Management, MIT.
12. Bertsimas, D., Hummel, P., Lo, A., 1998. An empirical analysis of best execution. Working paper, Sloan School of Management, MIT.
13. Birinyi L. What does institutional trading cost? 1995;Birinyi Associates, Greenwich, CT.
14. Bodurtha S., Quinn T. Does patient program trading really pay? Financial Analysts Journal. 46:1990;35-42.
15. Boyle P., Vorst T. Option replication in discrete time with transaction costs. Journal of Finance. 47:1992;271-294.
16. Brennan M., Copeland T. Stock splits, stock prices, and transaction costs. Journal of Financial Economics. 22:1988;83-101.
17. Brinson G., Hood R., Beebower G. Determinants of portfolio performance. Financial Analysts Journal. 42:1986;39-44.
18. Brinson G., Singer B., Beebower G. Determinants of portfolio performance II: an update. Financial Analysts Journal. 47:1991;40-48.
19. Chan L., Lakonishok J. Institutional trades and intra-day stock price behavior. Journal of Financial Economics. 33:1993;173-199.
20. Chan L., Lakonishok J. The behavior of stock prices around institutional trades. Journal of Finance. 50:1995;1147-1174.
21. Cohen K., Maier S., Schwartz R., Whitcomb D. Transaction costs, order placement strategy and existence of the bid-ask spread. Journal of Political Economy. 89:1981;287-305.
22. Collins B., Fabozzi F. A methodology for measuring transaction costs. Financial Analysts Journal. 47:1991;27-36.
23. Constantinides G. Capital market equilibrium with transaction costs. Journal of Political Economy. 94:1986;842-862.
24. Cuneo L., Wagner W. Reducing the cost of stock trading. Financial Analysts Journal. 26:1975;35-44.
25. Davis M., Norman A. Portfolio selection with transactions costs. Mathematiacs of Operations Research. 15:1990;676-713.
26. Demsetz H. The cost of transacting. Quarterly Journal of Economics. 82:1968;33-53.
27. Dumas B., Luciano E. An exact solution to a dynamic portfolio choice problem under transactions costs. Journal of Finance. 46:1991;577-596.
28. Easley D., O'Hara M. Price, trade size, and information in securities markets. Journal of Financial Economics. 19:1987;69-90.
29. Epps T.W. The demand for brokers' services: the relation between security trading volume and transaction cost. Bell Journal of Economics. 7:1976;163-196.
30. Foster D., Viswanathan S. A theory of the interday variations in volume, variance, and trading costs in securities markets. Review of Financial Studies. 3:1990;593-624.
31. Gammill J., Perold A. The changing character of stock market liquidity. Journal of Portfolio Management. 15:1989;13-18.
32. Garman M., Ohlson J. Valuation of risky assets in arbitrage-free economies with transactions costs. Journal of Financial Economics. 9:1981;271-280.
33. Glosten L., Milgrom P. Bid, ask and transaction prices in a specialist market with heterogeneously informed traders. Journal of Financial Economics. 14:1985;71-100.
34. Grossman S., Miller M. Liquidity and market structure. Journal of finance. 43:1988;617-633.
35. Grossman S., Vila J. Optimal dynamic trading with leverage constraints. Journal of Financial and Quantitative Analysis. 27:1992;151-168.
36. Harris, L., 1994. Optimal dynamic order submission strategies in some stylized trading problems. Working Paper No. 94-8, School of Business Administration, University of Southern California.
37. Harris, L., Hasbrouck, J., 1992. Market vs. limit orders: the superdot evidence on order submission strategy, NYSE working paper No. 92-02.
38. Hasbrouck J., Schwartz R. Liquidity and execution costs in equity markets. Journal of Portfolio Management. 14:1988;10-16.
39. Hausman J., Lo A., MacKinlay C. An ordered probit analysis of transaction stock prices. Journal of Financial Economics. 31:1992;319-379.
40. Heaton J., Lucas D. Evaluating the effets of incomplete markets on risk sharing and asset pricing. Journal of Political Economy. 104:1996;443-487.
41. Hodges S., Neuberger A. Optimal replication of contingent claims under transactions costs. Review of Future Markets. 8:1989;222-239.
42. Holthausen R., Leftwich R., Mayers D. The effect of large block transactions on security prices: a cross-sectional analysis. Journal of Financial Economics. 19:1987;237-267.
43. Holthausen R., Leftwich R., Mayers D. Large block transactions, the speed of response, and temporary and permanent stock-price effects. Journal of Financial Economics. 26:1990;71-95.
44. Huang, R., Stoll, H., 1995. Dealer versus auction markets: a paired comparison of execution costs on NASDAQ and the NYSE, Working paper 95-16, Financial Markets Research Center, Owen Graduate School of Management, Vanderbilt University.
45. Jarrow R. Market manipulation, bubbles, corners, and short squeezes. Journal of Financial and Quantitative Analysis. 27:1992;311-336.
46. Keim D., Madhavan A. The anatomy of the trading process. Journal of Financial Economics. 37:1995;371-398.
47. Keim, D., Madhavan, A., 1995b. The upstairs market for large-block transactions: analysis and measurement of price effects. Review of Financial Studies to appear.
48. Keim, D., Madhavan, A., 1995c. Execution costs and investment performance: an empirical analysis of institutional equity trades, Working paper, School of Business Administration, University of Southern California.
49. Kraus A., Stoll H. Price impacts of block trading on the New York stock exchange. Journal of Finance. 27:1972;569-588.
50. Kumar, P., Seppi, D., 1993. Limit and market orders with optimizing traders. Working paper, Graduate School of Industrial Administration, Carnegie-Mellon University.
51. Kyle A. Continuous auctions and insider trading. Econometrica. 53:1985;1315-1336.
52. Kyle A. Informed speculation with imperfect competition. Review of Economic Studies. 56:1989;317-356.
53. Leinweber, D., 1993. Using information from trading in trading and portfolio management. In: Sherrerd, K. (Ed.), Execution Techniques, True Trading Costs, and the Microstructure of Markets. Association for Investment Management and Research, Charlottesville, VA.
54. Leinweber D. Careful structuring reins in transaction costs. Pensions and Investments July. 25:1994;19.
55. Leland H. Option pricing and replication with transactions costs. Journal of Finance. 40:1985;1283-1301.
56. Litzenberger R., Rolfo J. Arbitrage pricing, transaction costs and taxation of capital gains. a study of government bonds with the same maturity date Journal of Financial Economics. 13:1984;337-351.
57. Lo A., MacKinlay C. When are contrarian profits due to stock market overreaction? Review of Financial Studies. 3:1990;175-206.
58. Lo, A., MacKinlay, C., Zhang, J., 1998. Econometric models of limit-order executions, MIT Laboratory for Financial Engineering working paper No. LFE-1031-97.
59. Loeb T. Trading cost: the critical link between investment information and results. Financial Analysts Journal. 39:1983;39-44.
60. Macey, J., O'Hara, M., 1996. The law and economics of best execution. Working Paper, Cornell University, unpublished.
61. Magill M., Constantinides G. Portfolio selection with transactions costs. Journal of Economic Theory. 13:1976;245-263.
62. Merton R. Lifetime portfolio selection under uncertainty: the continuous-time case. Review of Economics and Statistics. 51:1969;247-257.
63. New York Stock Exchange Fact Book: 1994 Data, New York Stock Exchange, April 1995.
64. Niehans, J., 1987. Transaction costs. In J. Eatwell, M. Milgate, and Newman, P. (Eds.), The New Palgrave: A dictionary of economics. The MacMillan Press, London, U.K.
65. Pérold A. The implementation shortfall: paper versus reality. Journal of Portfolio Management. 14:1988;4-9.
66. Samuelson P. Lifetime portfolio selection by dynamic stochastic programming. Review of Economics and Statistics. 51:1969;239-246.
67. Schwartz, R., Whitcomb, D., 1988. Transaction costs and institutional investor trading strategies. Monograph Series in Finance and Economics 1988-2/3, Salomon Brothers Center for the Study of Financial Institutions, New York University, New York.
68. Sherrerd, K. (Ed.), 1993. Execution techniques, true trading costs, and the microstructure of markets. Association for Investment Management and Research, Charlottesville, VA.
69. Shleifer A. Do demand curves for stocks slope down? Journal of Finance. 41:1986;579-590.
70. Stoll H. Inferring the components of the bid-ask spread: theory and empirical tests. Journal of Finance. 44:1989;115-134.
71. Stoll H. Equity trading costs. 1993;Association for Investment Management and Research, Charlottesville, VA.
72. Tiniç S. The economics of liquidity services. Quarterly Journal of Economics. 86:1972;79-93.
73. Treynor J. What does it take to win the trading game? Financial Analysts Journal. 37:1981;55-60.
74. Tuckman B., Vila J. Arbitrage with holding costs: a utility-based approach. Journal of Finance. 47:1992;1283-1302.
75. Turnbull, A., White, R., 1995. Trade type and the costs of making markets. Working Paper, Western Business School University of Western Ontario.
76. Vayanos, D., 1992. A dynamic model of an imperfectly competitive bid-ask market. Unpublished working paper.
77. Vayanos, D., 1995. Transaction costs and asset prices: a dynamic equilibrium model. Working paper, Graduate School of Business, Stanford University.
78. Vayanos, D., Vila, J., 1995. Equilibrium interest rate and liquidity premium under proportional transaction costs. Working paper, Graduate School of Business, Stanford University.
79. Vila J. Simple games of market manipulation. Economics Letters. 29:1989;21-26.
80. Wagner, W., 1993. Defining and measuring trading costs. In Sherrerd, K. (ed.), Execution Techniques, True Trading Costs, and the Microstructure of Markets. Association for Investment Management and Research, Charlottesville, VA.
81. Wagner W., Banks M. Increasing portfolio effectiveness via transaction cost management. Journal of Portfolio Management. 19:1992;6-11.
82. Wagner W., Edwards M. Best execution. Financial Analyst Journal. 49:1993;65-71.