Abstract
This paper proposes an optimal intraday trading strategy to absorb the shock to the stock market when an online portfolio selection algorithm rebalances a portfolio. It considers real-time data of limit order books and splits a very large market order into a number of consecutive market orders to minimise overall transaction costs, consisting of market impact costs as well as proportional transaction costs. To be specific, it optimises both the number of intraday trades and an intraday trading path for a multi-asset portfolio. Backtesting results from the historical limit order book data of NASDAQ-traded stocks show the superiority of the proposed trading algorithm in an environment of limited market liquidity.
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