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CCF Seminar
Agostino Capponi
Columbia University
Title: Liquidation game: investor vs. intermediaries

Abstract: We analyze a dynamic liquidation game where both liquidity demand and supply are endogenous. A large uninformed investor strategically liquidates a position, fully cognizant of the optimal response of competitive market makers. The Stackelberg game solution shows that the investor chooses to sell at a higher intensity when he has less time to trade. He prefers sunshine trading over stealth trading, where the intensity is constant across all states. This enables market makers to predict when execution ends, which helps them provide liquidity and thus reduces the liquidity premium they charge. The strongest empirical support for the model is that price pressure subsides before the order execution ends.

(Joint work with Hongzhong Zhang and Albert Menkveld)

Date: Monday, February 26, 2018
Time: 4:30 pm
Location: Wean Hall 8220
Submitted by:  Johannes Muhle-Karbe