Chicago Johannesburg London Portland Princeton San Francisco Stamford Tokyo Toronto Washington- Denver Meeting: Topic TBA Wednesday, September 17, 2008 - 6:00pm
Boston Meeting: Agency Costs of Institutional Trading
Tuesday, March 11, 2008 - 6:15pm
3rd Floor of the Tennis & Racquet Club, 939 Boylston Street [call 617-536-4630 for directions]
http://www.qwafafew.org/boston-file-edelen
Roger Edelen, Speaker
Agency costs of institutional trading
Roger M. Edelen*
Carroll School of Management
Boston College
Chestnut Hill, MA 02467
rmedelen@bc.edu
Gregory B. Kadlec
Pamplin College of Business
Virginia Tech
Blacksburg, VA 24060-0221
kadlec@vt.edu
Abstract
Under the typical institutional trading arrangement a portfolio manager makes the trade decision and a trading desk executes the trade, with execution performance evaluated against a benchmark such as the volume weighted average price (VWAP). We develop a model which shows that this arrangement gives the trader an incentive to maintain a relatively low ask quote when valuations rise to expedite sell trades and a relatively high bid quote when valuations fall to expedite buy trades. This process inhibits information assimilation giving rise to price-adjustment delays. We provide empirical support for this argument with several previously undocumented cross sectional and time series facts about price-adjustment delays.
Roger Edelen, Speaker
Agency costs of institutional trading
Roger M. Edelen*
Carroll School of Management
Boston College
Chestnut Hill, MA 02467
rmedelen@bc.edu
Gregory B. Kadlec
Pamplin College of Business
Virginia Tech
Blacksburg, VA 24060-0221
kadlec@vt.edu
Abstract
Under the typical institutional trading arrangement a portfolio manager makes the trade decision and a trading desk executes the trade, with execution performance evaluated against a benchmark such as the volume weighted average price (VWAP). We develop a model which shows that this arrangement gives the trader an incentive to maintain a relatively low ask quote when valuations rise to expedite sell trades and a relatively high bid quote when valuations fall to expedite buy trades. This process inhibits information assimilation giving rise to price-adjustment delays. We provide empirical support for this argument with several previously undocumented cross sectional and time series facts about price-adjustment delays.
