Equity Trade Scheduling
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Date: 10-01-2007
Start Time:
6:00pm
End Time: 7:30pm
Speaker: Dan diBartolomeo, Northfield
Location: 412 Schapiro CEPSR, Davis Auditorium
ABSTRACT
This presentation will focus on an algorithmic methodology for equity trade scheduling. In this approach, optimal equity trading is framed as a multiperiod optimization process in discrete time. The algorithm incorporates several advanced features including consideration of cross-market impact of concurrent trades, and the separation of impact effects into temporary and permanent portions. The efficiency of the algorithm is evidenced by comparative empirical analysis of many thousands of program trades done using the Instinet implementation of the algorithm since October 2006, employing this and two other different approaches to algorithmictrading The presentation will close with discussion of a relatedmarket impact model for equities with several desirable properties.The functional form of the model is very tractable with only twofree parameters to be estimated. The impact model alsoincorporates boundary conditions that ensure rational trading cost forecasts over the entire feasible range of trade sizes. An analysis of mor than one million US equity trades shows an in-sample correlation (trade dollar weighted) of more than 75% between forecasts and outcomes, a degree of efficiency that is clearly valuable to traders.
BIO
Mr. diBartolomeo is President and founder of Northfield Information
Services, Inc. Based in Boston since 1986, Northfield develops
quantitative models of financial markets. Additional
Northfield staff members are located in London, Moscow, Toronto, Tokyo
and Chicago. The firm’s clients include nearly three hundred financial
institutions in twenty countries.
Dan is a Visiting Professor at the CARISMA research center of Brunel
University in London. In addition, he serves on the Board of
Directors of the Chicago Quantitative Alliance and the advisory board
of the International Association of Financial Engineers. is an active
member “QWAFAFEW”. He has been admitted as an expert witness in
US federal courts for litigation matters regarding investment
management practices and derivatives.
Mr. diBartolomeo is a director of the American Computer Foundation, a
former member of the Board of Directors of The Boston Computer Society,
and formerly served on the industry liaison committee of the Department
of Statistics and Actuarial Sciences at New Jersey Institute of
Technology. He is vice-chairman of the Board of Trustees of
Woodbury College, Montpelier, VT and continues his several years of
service as a judge in the Moscowitz Prize competition, given for
excellence in academic research on socially responsible investing.
Mr. diBartolomeo has written extensively for the CFA Research
Foundation. This work includes “The Risk of Equity Securities and
Portfolios” published in Equity Specialization Program Readings 1997
and a new wealth management textbook Investment Management for Private,
Taxable Wealth (with Jarrod Wilcox and Jeffrey Horvitz). He also
provided a chapter on asset allocation for high-net worth individuals
for CFA’s recent book, Global Perspectives on Investment Management.
Other writings include chapters in five other textbooks (The Handbook
of Municipal Bonds; Advances in Portfolio Construction and
Implementation; Linear Factor Models in Finance; Portfolio Analysis:
Advanced topics in performance measurement, risk and attribution;
Forecasting Volatility). His journal publications include
"Socially Screened Portfolios: An Attribution of Relative Performance"
(with Lloyd Kurtz) that appeared in the Fall 1996 Journal of
Investing; “Investment Performance Measurement and the
Probability Distribution of Pension, Assets, Liabilities and Surplus”
that appeared in the Spring 1997 Journal of Performance Measurement;
and two papers in Financial Analysts Journal, “Approximating the
Confidence Interval on Sharpe Style Weights” (with Angelo Lobosco, July
1997) and “Mutual Fund Misclassification” (with Erik Witkowski,
September 1997). His most recent publications are “Just Because
We Can Doesn’t Mean We Should: Use of Daily Data in Performance
Attribution” published in the Spring, 2003 Journal of Performance
Measurement, and the “DSI Catholic Values 400” (with Lloyd Kurtz in
Journal of Investing 2005).