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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26395
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| Title: | Measuring and Modeling Execution Cost and Risk |
| Authors: | Engle, Robert
Ferstenberg, Robert
Russell, Jeffrey |
| Issue Date: | Apr-2006 |
| Series/Report no.: | FIN-06-044 |
| Abstract: | We introduce a new analysis of transaction costs that explicitly
recognizes the importance of the timing of execution in assessing
transaction costs. Time induces a risk/cost tradeoff. The price of
immediacy results in higher costs for quickly executed orders while more
gradual trading results in higher risk since the value of the asset can
vary more over longer periods of time. We use a novel data set that
allows a sequence of transactions to be associated with individual
orders and measure and model the expected cost and risk associated with
different order execution approaches. The model yields a risk/cost
tradeoff that depends upon the state of the market and characteristics
of the order. We show how to assess liquidation risk using the notion of
liquidation value at risk (LVAR). |
| URI: | http://hdl.handle.net/2451/26395 |
| Appears in Collections: | Finance Working Papers
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