Journal of Financial Economics Vol. 132 No. 3 2019

Information and trading targets in a dynamic market equilibrium

Jin Hyuk Choi^1,2,3; Kasper Larsen^1,3,2; Duane J. Seppi^1,2,3

¹ Carnegie Mellon University · ² Rutgers, The State University of New Jersey · ³ Ulsan National Institute of Science and Technology

Abstract

This paper describes equilibrium interactions between dynamic portfolio rebalancing given a private end-of-day trading target and dynamic trading on long-lived private information. Order-splitting for portfolio rebalancing injects multifaceted dynamics in the market. These include autocorrelated order flow, sunshine trading, endogenous learning, and short-term speculation. The model has testable implications for intraday patterns in volume, liquidity, price volatility, order-flow autocorrelation, differences between informed-investor and rebalancer trading strategies, and for how these patterns comove with trading-target volatility and other market conditions.

DOI

10.1016/j.jfineco.2018.11.003

Volume

132

Issue

3

Pages

22-49

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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