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Primary Article

Multi-day Executions

Tianwu (Michael) Cai and George Sofianos
The Journal of Trading Summer 2006, 1 (3) 25-33; DOI: https://doi.org/10.3905/jot.2006.644086
Tianwu (Michael) Cai
A vice president, Equity Execution Strategies, at Goldman, Sachs & Co.
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  • For correspondence: tianwu.cai@gs.com
George Sofianos
A vice president, Equity Execution Strategies, at Goldman, Sachs & Co.
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  • For correspondence: george.sofianos@gs.com
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Abstract

Asset managers often have to spread their order executions over several days to minimize liquidity impact. In this paper, we present a framework for evaluating multi-day execution strategies and use a sample of multi-day agency executions to quantify the trade-offs. Our analysis shows that for volatile stocks and/or long execution horizons, execution risk can easily overwhelm all other considerations. For stocks with daily close-to-close volatility of 3%, for example, the five-day execution risk is 400 basis points. The evidence from our sample of multi-day executions suggests that for daily executions up to 15% average daily volume and up to five-day execution horizons, cross-day impact persistence and information leakage are relatively small: the impact cost of selling 15 million shares over five days, for example, is only slightly higher than the impact cost of selling 3 million shares over one day. Our multi-day executions, however, have high 50 basis points short-term alpha. This high alpha raises the cost of spreading execution across days.

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The Journal of Trading
Vol. 1, Issue 3
Summer 2006
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Multi-day Executions
Tianwu (Michael) Cai, George Sofianos
The Journal of Trading Jun 2006, 1 (3) 25-33; DOI: 10.3905/jot.2006.644086

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Multi-day Executions
Tianwu (Michael) Cai, George Sofianos
The Journal of Trading Jun 2006, 1 (3) 25-33; DOI: 10.3905/jot.2006.644086
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