Abstract
We consider a large trader liquidating a portfolio using a transparent trading venue with price impact and a dark pool with execution uncertainty. The optimal execution strategy uses both venues continuously, with dark pool orders over-/underrepresenting the portfolio size depending on adverse selection and return correlations. Trading at the traditional venue is delayed depending on dark liquidity and adverse selection. If future returns depend on historical dark pool liquidity, then sending orders to the dark pool can be worthwhile simply to gather information. Pushing up prices at the traditional venue while selling in the dark pool might generate profits.
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