2024/09/13 by Agostino Capponi, Albert J. Menkveld, Hongzhong Zhang · 1 voice
Economics, Econometrics and Finance · #Economic theories and models
paper · doi:10.1093/rof/rfae036
openalex publication_date 2024/09/13 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/01
Abstract We model the execution of a large uninformed sell order in the presence of strategic competitive market makers. We solve for the unique symmetric equilibrium of the model in closed form. Analysis of this equilibrium reveals that large orders unequivocally benefit market makers, while smaller investors stand to benefit only if the order trades with a sufficiently high intensity. The equilibrium results further provide a rationale for the empirically observed patterns of (1) shorter orders trading at higher intensities and (2) price pressures potentially subsiding before large orders stop executing.