medium · Market Microstructure
A risk-averse execution algorithm (Almgren-Chriss) will produce a trading trajectory that is 'front-loaded' compared to a TWAP schedule.
What is the economic rationale for this behavior?
- To minimize the temporary market impact cost
- To exploit positive serial correlation in order flow
- To reduce the exposure to timing risk and volatility
- To maximize the capture of maker rebates on the exchange
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