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When Less Is More: Passive Volume Algos for Enhanced Performance

Paul Besson and Matthieu Lasnier
The Journal of Trading Spring 2018, 13 (2) 20-34; DOI: https://doi.org/10.3905/jot.2018.13.2.020
Paul Besson
is head of quantitative research at Kepler Cheuvreux in Paris, France
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Matthieu Lasnier
is a quant analyst at Kepler Cheuvreux in Paris, France
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Abstract

Large aggressive orders in the market often trigger, in turn, aggressive trades from Standard Volume algos. This phenomenon leads to late aggressive trading, which is particularly predictable and detrimental to execution performance. This hard-wired feature is rarely overcome, although it could be solved simply by changing “Standard Volume” indexing to “Passive Volume” indexing. Passive volume is defined as the volume traded passively, according to the size of the transaction. According to the authors’ simulations, performances improve markedly when a Passive Volume algo is used, versus the Arrival Price as well as versus VWAP. Passive Volume algos would then be a particularly advisable alternative to Standard Volume algos on large-caps, especially for participation rates below 15% and expected trading durations longer or equivalent to 60 minutes. The same can be said for durations above 90 minutes on mid-caps.

TOPICS: Simulations, passive strategies

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The Journal of Trading: 13 (2)
The Journal of Trading
Vol. 13, Issue 2
Spring 2018
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When Less Is More: Passive Volume Algos for Enhanced Performance
Paul Besson, Matthieu Lasnier
The Journal of Trading Mar 2018, 13 (2) 20-34; DOI: 10.3905/jot.2018.13.2.020

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When Less Is More: Passive Volume Algos for Enhanced Performance
Paul Besson, Matthieu Lasnier
The Journal of Trading Mar 2018, 13 (2) 20-34; DOI: 10.3905/jot.2018.13.2.020
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  • Article
    • Abstract
    • THE MAIN SHORTCOMINGS OF THE STANDARD VOLUME ALGO
    • LARGE POTENTIAL GAINS EXPECTED FROM USING PASSIVE VOLUME INDEXING
    • POTENTIAL USAGE OF PASSIVE VOLUME ALGOS
    • CONCLUSION
    • APPENDIX
  • Info & Metrics
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  • PDF (Subscribers Only)

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