Abstract
This paper describes equilibrium interactions between dynamic portfolio rebalancing given an end-of-day trading target and dynamic trading on long-lived private information. Order-splitting for portfolio rebalancing injects complicated dynamics in the market. The largest quantitative driver of portfolio rebalancing order flow is a deterministic component based on the trading target. Learning and sunshine trading effects are also present but smaller. The model has empirical implications about positive comovement between rebalancing volatility, order-flow autocorrelation, and intraday U-shaped patterns in volume, price volatility, and order-flow autocorrelation.
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