VWAP and Volume Profiles

Abstract

Volume profiles are a primary component of VWAP execution strategies. A study of simulated VWAP execution performance using intraday tick data indicates that innovations beyond a simple smile profile yields almost no benefit. Factors beyond the provider's control, such as stock characteristics like liquidity and volatility, have a much greater impact. These results indicate that other aspects of VWAP algorithms, such as the tactics on individual trades intraday, are more likely to yield significant benefits than refinements on the volume profile.

TOPICS: Exchanges/markets/clearinghouses, in markets