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Article

Trade Cost: Handicapping on PAR

Vlad Rashkovich and Arun Verma
The Journal of Trading Fall 2012, 7 (4) 47-54; DOI: https://doi.org/10.3905/jot.2012.7.4.047
Vlad Rashkovich
is the global business manager of trade analytics at Bloomberg, L.P. in New York, NY.
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  • For correspondence: vrashkovich1@bloomberg.net
Arun Verma
is a senior quantitative analyst at Bloomberg, L.P. in New York, NY.
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  • For correspondence: averma3@bloomberg.net
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Abstract

We analyze the prevailing approach to estimating implicit trade costs and suggest improvements that create greater precision. Our model studies buy-side parent orders to prove that Size/ADV is a sublinear factor, which means that doubling an order does not double the trade cost. The same precision cannot be achieved from the child order data available to the sell side. After improving on existing methods, we cast doubt on whether it is realistic to delineate permanent and temporary costs when numerous market participants influence prices simultaneously. As a result, we introduce a new highly accurate pre-trade cost model with predictive power (R2) of up to 26%.

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The Journal of Trading: 7 (4)
The Journal of Trading
Vol. 7, Issue 4
Fall 2012
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Trade Cost: Handicapping on PAR
Vlad Rashkovich, Arun Verma
The Journal of Trading Sep 2012, 7 (4) 47-54; DOI: 10.3905/jot.2012.7.4.047

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Trade Cost: Handicapping on PAR
Vlad Rashkovich, Arun Verma
The Journal of Trading Sep 2012, 7 (4) 47-54; DOI: 10.3905/jot.2012.7.4.047
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  • Article
    • Abstract
    • ESTIMATING TRADE COSTS
    • ALMGREN’S TRIBUTE
    • RECONSIDERING ALMGREN
    • PARTICIPATION ARRIVAL REVERSION (PAR)
    • REEXAMINING ALL TRADE COST COMPONENTS
    • DATA SET
    • OUR TRADE COST MODEL
    • SIMPLIFIED METHODOLOGY
    • CONCLUSION
    • ENDNOTE
    • REFERENCES
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  • PDF (Subscribers Only)

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