New Economics Papers
on Market Microstructure
Issue of 2012‒07‒08
one paper chosen by
Thanos Verousis

  1. Effective Trade Execution By Riccardo Cesari; Massimiliano Marzo; Paolo Zagaglia

  1. By: Riccardo Cesari (Department of Statistics, University of Bologna, Italy); Massimiliano Marzo (Department of Economics, University of Bologna, Italy); Paolo Zagaglia (Department of Economics, University of Bologna, Italy)
    Abstract: This paper examines the role of algorithmic trading in modern financial markets. Additionally, order types, characteristics, and special features of algorithmic trading are described under the lens provided by the large development of high frequency trading technology. Special order types are examined together with an intuitive description of the implied dynamics of the order book conditional to special orders (iceberg and hidden). The chapter provides an analysis of the transaction costs associated with trading activity and examines the most common trading strategy employed in the market. It also examines optimal execution strategy with the description of the Efficient Trading Frontier. These concepts represent the tools needed to understand the most recent innovations in financial markets and the most recent advances in microstructures research.
    Keywords: Order book; price impact; execution strategy; high frequency trading
    JEL: G12 G14 G19
    Date: 2012–06

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